01 May 2008

Creation of closed-ended funds to raise equity has been gaining popularity in the UAE’s construction sector, according to newly-formed Omniyat Investment Management (OIM), which claims to be the first company of its kind that is affiliated to a freehold property developer (Omniyat Holdings).

OIM aims to be the pre-eminent funds and asset management company operating in the Dubai International Financial Centre, according to Mehdi Amjad, president and CEO of Omniyat Holdings.
Discussing the comparative advantages of raising funds through equity versus funding projects through bank loans, Wui-Hua Tan, chief financial officer of OIM tells Gulf Construction, “The cost of equity is of course, always higher than the cost of debt. In order to maximise return on shareholders’ equity, it is natural to then maximise leverage.
“However, on the loans side, the limiting factors will be the reluctance of the bank to lend too much or its inability by virtue of its exposure to a single entity. The recent story of an Australian fund manager with multi-billion-dollar properties under management reminds us that too much debt and complex debt arrangements can be detrimental to an organisation’s survival in a downturn. The obvious benefit of raising equity through funds is that it permits more projects to be undertaken while sharing its risks and rewards alongside the investors.”
However, in this rising trend, there are many who are raising blind funds in the hope of acquiring land or property later, according to Tan.
“There are also those who raise funds for specific property developments without the backing of a professional development team to carry out the project. A great number of such fund-raising is carried out or asset managed by unregulated managers.”
Speaking on attitudes, preferences and apprehensions of investors in general to these close-ended funds, Tan says: “The response of investors in general to a particular fund is dependent on the risk-adjusted returns offered by the funds. I can safely say that the regional investors are more comfortable investing in products in the region as compared to investors from the US, Europe or Asia.
Explaining the product further, he adds: “There are many areas of investment in the UAE that offers superior risk-adjusted returns as compared to the rest of the world. The catch lies with the qualitative/immeasurable risks versus quantitative/measurable risks. Some element of subjectivity goes into the qualitative/immeasurable risks resulting in longer due diligence and apprehension amongst new investors to the UAE. I am sure with passing of time, this misconception will disappear.”
OIM, according to him, is superior to most other companies, by having a ready deal pipeline, a professional development team and a DFSA (Dubai Financial Services Authority) regulated entity to manage the assets. Affiliated with Omniyat Properties, it will be able to generate returns from Day One of the draw-down of capital, especially given the continual appreciation of property value.
OIM is already working on arranging two deals with an estimated value of Dh2 billion ($544.9 million) during the second half of this year.
“These will be two closed-ended real estate funds, which we will place privately to our database of investors as well as institutional investors. The new company has been authorised by the DFSA to arrange investment deals, advise on financial products or credit, and manage assets. “We aim to offer a range of property fund products and we have a ready deal flow because of our property development arm, Omniyat Properties,” Amjad explains.
Ehsan Abbas, CEO of OIM, emphasises the synergies generated by OIM, saying affiliation with the Omniyat Group brings about some major points of difference between OIM and other asset managers.
“For one, the affiliation with Omniyat Properties facilitates a never-ending deal-pipeline of assets. Investors placing money with Omniyat Investment Management will enjoy immediate capital deployment and instant return on equity with no lag – mitigating capital deployment risk. Omniyat Properties also ensures that developments are constructed under professional management, thereby mitigating delivery risk,” he adds.
Abbas says that the company will not only be managing real estate owned by Omniyat Properties but also assets belonging to other financial institutions and super-high-net-worth individuals. “We have already been approached by a lot of investors who are active in the region’s real estate market to manage their assets,” he says.
Will OIM eventually go for a public listing for some of its funds? Abbas says the company will begin with managing private wholesale funds and listing is one of the exit strategies for the funds.
“This is something we are considering as part of our fund management strategy overall,” Abbas concludes.

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