The National Investor (TNI)

The National Investor is a leading Abu Dhabi-based investment management and advisory firm.
We have three principal lines of business: Asset Management, Investment Banking and Private Equity.

The National Investor
The National Investor
The National Investor
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CEO’s Message

Dear Shareholders,

The fiscal year ending 31 March 2012 was a challenging year for the financial services industry characterized by an increasingly difficult economic environment and political upheaval in the Middle East and North Africa (MENA) region. Although the United Arab Emirates (UAE), our core market, did not witness any political or social unrest, and remained stable throughout this period, we were not immune from the economic and financial fall-out of this political uncertainty given our regional footprint. Furthermore, the expectation of a global economic recovery diminished with the growing sovereign credit crisis in the European Union, which exacerbated the volatility in financial markets.

Against this backdrop, our consolidated revenues from continuing and discontinued operations for FY 2011-12 increased to AED 107.1 million representing a year-on-year increase of 5%. Our net profit increased to AED 3.9 million. Our financial performance reflects an economic environment that remains distressed. However, despite these challenges we have managed to mitigate the adverse impact on our profitability as much as possible through our prudent financial management and fiscal discipline.

While our financial performance fell short of expectations, we remained resilient at a time when several of our local and regional competitors had to substantially scale down the size and scope of their activities, suspend commercial operations or file for bankruptcy protection. We have not faced any liquidity constraints or, more importantly, reputational damage in an environment where many of our peers have had to rely on large equity injections from their shareholders to be able to sustain operations. We pride ourselves on the fact that in such a difficult economic climate we managed to preserve the capital of our shareholders, and the integrity and reputation of our franchise. Furthermore, we have remained profitable throughout the worst economic downturn in recent history. In spite of the challenges we faced during the year, we pressed ahead with the implementation of our long-term strategic plan. To this end, we launched the Etqaan Shari’ah Fund, our flagship private equity fund, with seed capital of c. AED 86 million. We launched this fund jointly with KIPCO Asset Management Company (KAMCO), which is one of the largest Kuwait-based asset managers. This fund will focus on opportunities in turnarounds, recapitalizations, growth capital and secondary buy-outs in MENA.

Another noteworthy achievement was the subscription of c. AED 86 million into our UAE Blue Chip Fund by a leading institutional investor based in Europe. This group manages money for endowments, foundations, and public and private pension funds. This subscription underscores the growing importance of the UAE to institutional investors and validates the fund’s position among the top-tier funds in the market. During FY 2011-12, our assets under management increased by c. 27% at a time when institutional investors were reluctant to grow their exposure to frontier markets, which is a testament to the quality of our product and service offering.

During the year, we completed the divestiture of one of our proprietary portfolio companies and realized spectacular gains on this exit. This was a company we invested into during 2001, and grew both organically and through acquisitions to position it as one of the leaders in its market segment. Our portfolio management team played a significant role in driving the company’s growth and expansion into new geographic markets over the years, and maximizing shareholder value. This demonstrates our ability to drive exits in markets that remain depressed and volatile, and deliver significant returns to our investors.

Furthermore, we successfully completed a comprehensive refurbishment of our flagship real estate project, Mafraq Hotel. The hotel was officially reopened in November 2011 and since then has been improving its occupancy levels and profitability.

In light of the prevalent difficult economic environment and anticipated downward shift in market conditions, we took the necessary steps during the year to ensure we maintained our profitability and preserved shareholders equity – our first and foremost priority in this volatile economic climate. These steps involved closely integrating our private equity, investment banking and principal investments businesses. In the process, we have rationalized our headcount in the middle- and back-office functions, and have reduced costs across the firm. These changes, although difficult, are for the medium- and long-term benefit of the firm, our clients, and our shareholders, who rely on us to make judicious decisions to protect their capital. Furthermore, such changes are an integral part of the evolution of our business model in a rapidly changing competitive landscape. Consequently, we now have a sustainable organization and cost structure, and are ideally positioned to take advantage of an upturn in market conditions. We have an exceptionally strong franchise, and we intend to capitalize on this strength to position ourselves as the preeminent investment management and advisory business in the Gulf Co-operation Council (GCC). We will continue to build on this to create value for our clients and shareholders.

Our asset management business will be focused on managing our flagship funds, the UAE Blue Chip Fund and the MENA UCITS III Fund, and build upon our track record in the MENA long-only strategy given the renewed interest from international institutional investors. These funds are primarily targeted at sophisticated international and regional investors. Our main objective is to achieve scale by growing assets under management in these funds and positioning ourselves as one of the leading fund managers in the GCC. We are confident we can achieve our objective since we possess the risk management, corporate governance and buy-side research capabilities that institutional investors demand. Furthermore, our UAE Blue Chip Fund retained its A-rating from Standard & Poor’s, which is an endorsement of our investment process and strong track record.

The political turmoil in the MENA region had an adverse impact on the performance of our funds during the first nine months of our fiscal year, however, the investor- base of our funds remained stable due to low levels of redemptions and increased subscriptions at a time when many of our competitors faced substantial redemptions. This is a reflection of the resilience of the platform and the rigor of our investment process; attributes that we believe differentiate us from our peers. However, regional stock markets have gained momentum since the start of the new calendar year, which has given us the opportunity to enhance the performance of our funds. As of 31 March 2012, our UAE Blue Chip Fund and MENA UCITS III Fund had outperformed their benchmarks by c. 11% and c. 1% respectively since inception. As the regional stock markets continue to rally (at the time of the writing of this report, MENA markets were up on average c. 14% since the start of the calendar year) we anticipate international institutional investors will increase their allocations to MENA. We are ideally positioned to capitalize on this trend and will aim to capture a part of these capital inflows into the region. Furthermore, we will continue to focus on delivering superior performance and client service, and to broaden our product offering and distribution capability as the competitive landscape in the regional investment management industry evolves.

Our private equity, investment banking and principal investments businesses are being integrated, with significant sharing of resources, while retaining their distinctive identities and focus. These activities will be undertaken within the constraints defined by the separation between a sell-side and a buy-side business to ensure regulatory compliance. Members of this group will also manage the Growth Capital Fund I and the Etqaan Shari’ah Fund.

Investment banking activity in the region, in particular equity offerings, has remained particularly slow, given the challenging economic environment and volatile capital markets. Due to the continued weakness and volatility of capital markets, we have renewed our focus on growing our pipeline of middle-market M&A transactions. In particular, we are enhancing our cross- border capabilities in the M&A advisory business given the tremendous opportunity in advising companies in the UAE on their expansion strategy into new geographic markets in the GCC. Our goal is to continue to grow our middle-market M&A advisory business under the new structure.

Furthermore, we have seen a steady stream of asset disposals by corporates that have faced liquidity constraints driven by excessively leveraged balance sheets. Due to restricted access to capital markets, many of these corporates have had to rely on a sale of assets to fund their commitments. We have been actively engaged with some of these corporates, advising on the disposal of assets to help meet their financial obligations to creditors.

During FY 2011-12 we focused on developing our network of investment banking relationships with local and international financial institutions with the objective of expanding our geographic footprint and product offering. We have entered into a strategic partnership with a leading UAE- based commercial bank that has a strong corporate banking franchise. Furthermore, we have partnered up with the investment banking entity of one of the largest U.S. commercial banks in order to provide our clients with access to investment banking transactions in the U.S. and Europe.

In parallel, we will continue to identify direct investment opportunities, whereby we will invest our own money alongside capital from clients. This direct investments model has become increasingly attractive to institutional investors and family offices in the region, and we intend to develop this into a full-fledged offering. We believe that in the current economic environment there are attractive investment opportunities and we are well positioned to identify these through our extensive network of relationships. We are evaluating a number of such investment opportunities in sectors including education, health-care, and general industrials, and expect to close some of these during FY 2012-13. We also remain committed to realizing value from our existing portfolio of the Growth Capital Fund I, and are investing significant time and resources in managing the fund’s portfolio, with a view to creating an exit in the new fiscal year. This reinforces our commitment to value creation for our investors even in a depressed and uncertain commercial environment, where the opportunities for realizing exits are limited. Furthermore, we will continue to focus on managing our proprietary portfolio, with particular emphasis on Colliers International and Mafraq Hotel, with the objective of maximizing financial and strategic value creation in these businesses.

In light of the global economic and financial crisis, and the political upheaval in the MENA region, the fundraising environment during this fiscal year remained challenging; however, there were early signs of recovery in the last quarter. Despite the worsening overall economic climate, we had a successful outcome in our fundraising efforts and we received a substantial subscription into our UAE Blue Chip Fund from a large institutional investor based in Europe.

This was the result of a concerted effort to create market visibility and awareness among institutional investors of our product offering, and we will continue to build on this momentum. During this fiscal year, we continued to strengthen our sales and coverage model through agreements with commercial banks and private wealth managers, which have an open architecture, to distribute our funds to their high net- worth clients. Furthermore, we have entered into an agreement to market the flagship funds of a leading international investment manager with an exceptional track record to a select group of our clients. This initiative creates a new revenue stream for the firm since we are entitled to a share of the fee that will accrue to the investment manager on any mandates from our clients.

Looking ahead, we remain optimistic on the future of the firm. We will endeavor to continue building our franchise on the principles of integrity and professional excellence that we have nurtured since our inception in 1994. Our business model has evolved in light of the changing competitive landscape in the financial services industry, and we have created sustainable and sufficiently diversified revenue streams. Our business model mitigates the risk to the capital of our shareholders and clients in a depressed economic environment, given the conservative nature of our approach to investment management. Furthermore, it is our intention to continue to invest smartly and return cash to our shareholders as and when we realize exits on our proprietary investments.

We remain focused on growing our client- driven fee business despite the intensely competitive dynamic of that business. We face competition from domestic and international investment banks, which have substantial resources, including the capability to lend to clients. However, we have managed to build a credible franchise driven by our solid track record, extensive network of relationships and strong market insights. Furthermore, we have a very capable and talented team who continues to demonstrate tremendous enthusiasm, drive and commitment. Consequently, we have positioned ourselves as one of the leading investment management and advisory firms in the MENA region. We are confident we have the strength and resilience to further enhance our position of leadership even though the commercial and regulatory environment we operate in remains difficult. The profitability and sustainability of our business are the factors that differentiate us from the competition. As market conditions stabilize, we look forward to building on these strengths to creating an even stronger franchise.

I would like to take this opportunity to express my gratitude to our clients, board members and shareholders for the confidence and trust they have shown in us. It would not have been possible without your support and encouragement to manage the business through this period of economic uncertainty and market volatility.

Yasser Geissah
Chief Executive Officer

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