Current geopolitical headwinds, including the US-China trade war and Brexit, will not result in a prolonged downturn of the global economy, according to the executive chairman of Investcorp, the global alternative investment manager with offices in New York, London, the Gulf and Singapore.
The financial system is strong and banks have learned the lessons of the financial crisis, lowering their leverage, Mohammed Alardhi told The National in an exclusive interview from Davos where he is attending the World Economic Forum's Annual Meeting.
On Monday, the International Monetary Fund lowered its global growth forecast for 2019 and 2020, and warned of the dangers from escalating trade tensions that have already started to dampen the world economic outlook.
“There is liquidity globally, there is growth, leverage in corporations is way lower than it was in 2008. Corporations got rid of one-third to two-thirds of their balance sheets. So the financial system is really strong and good. So where are the weaknesses, where is the fragility?
“One is the geopolitics. America with China, Brexit, what’s happening in Europe. These are risks but they are not risks that will take us to a recession. So, I don’t believe that in 2019 that we are heading to a recession. We will head to volatility, maybe. For some people it will look really hard and feel like a recession, but we are not there
“This is the macro [picture] for us in 2019, what we think and maybe even beyond 2019.”
Mr Alardhi is cautious, however, about the implications of the UK leaving the European Union and in what manner. Investcorp is waiting to see how it plays out before committing to more investments in Britain, where it already owns property, he said.
“Now having said that, I don’t think the UK is going to fail with whatever Brexit comes. Again, one of the most prepared sectors in the UK is the financial sector. There is growth, there is robustness. So, I don’t think if there is the worst option, the Bank of England will stay just watching it. They have ammunition, they have a lot of fire power to do things.”
He is not worried either about Investcorp’s existing assets in the UK but if the uncertainty around Brexit goes on for too long then some of the firm’s investors may begin to become concerned, he said.
“The investments that we have [in the UK], we have invested in real estate and in real estate that is related to logistics and we think that is fine. Whatever happens there will be supply chains. Whatever happens there will infrastructure that’s supposed to go ahead, will go ahead.”
Mr Alardhi sees huge opportunities from the impact of technology and digitisation but the Arab world is not doing enough to take advantage. Countries in the region need to spend more consistently on developing artificial intelligence and other capabilities, he said.
This year in Davos, where 3,000 officials, chief executives and experts are taking part, the theme is "Globalisation 4.0: Shaping a Global Architecture in the Age of the Fourth Industrial Revolution". The forum wants to help create a more inclusive future in the wake of the disruption of economies caused by rapidly shifting technology.
“This is something we need to think about, because those who missed the [first] industrial revolution could still not catch up. Now this is a revolution that is going to go far quicker, and I think this is where we really need to wake up.”
Investcorp has been investing extensively in technology over the last 18 years, especially in Europe. Areas of investment include cyber-security and technologies in the health care sector.
Other opportunities for growth are in the large emerging markets of China and India. Last year, it agreed to invest an initial $150 million in partnership with Hong Kong-listed asset manager China Everbright.
“In 2015, we made this vision for growth strategy. India and China were the two markets we said we must target. We haven’t done anything [there] since Investcorp came about and for good reasons. China now is not China at the beginning of the 1980s, India now is not India at the beginning of the 1980s. A lot has changed. So, we saw huge appetite from our investors into Chinese technology. That’s why we chose that deal.”
Investcorp also expects to soon announce its expansion into India, he said.
“It will be a subsidiary of Investcorp. We took an existing business. IDFC is a big financial conglomerate in India and because of the regulation in India they had to choose between being a bank or an investment company. So they wanted to sell their private equity and their real estate business. We bought those with the teams and that’s what we will be doing there.”
Investcorp’s ambition to increase its presence is part of a well-considered strategy to diversify its business in order to secure its future success.
“I think in 2015 one of the risks was, is that we were so dependent on raising money just from the Gulf and investing it in North America and Europe. We weren’t really global in the sense that our revenue was global or our distribution was global. Now, in our last fiscal year [to end of June 2018] we raised about $7 billion as a whole. Only 15 per cent came from the Gulf. We’ve made a really good step in diversifying our revenues, our distribution.”
The broadening of its investor base beyond its home region could have raised some of the trust and governance questions the regional private equity sector has been grappling with in the wake of the collapse of Abraaj. However, it has not been an issue for Investcorp, Mr Alardhi said.
“None of our investors brought up this subject. Because I think they know what kind of institution we are. We really had no problem [after] what happened.”
The majority of the Bahrain-listed firm’s products are sharia-compliant because of the nature of its original investor base and with that has come a highly ethical and sustainable approach to running the firm’s investments, said the former Oman Air Force chief.
“It is in our DNA that we sit between the aggressive private equity companies and [the likes of] family offices. Our [portfolio] companies, we take them, we incubate them, we work with their people. Obviously there are tough decisions we have to take. I think that’s why the majority of our companies have continued to grow and create more value way after we have left the journey.”
Since he took on the role of executive chairman, following founder Nemir Kirdar’s retirement, assets under management at Investcorp have more than doubled.
“In 2015, we were at $10 billion [in assets under management]. We wanted to do $25bn. We said we wanted to do $25bn in five years. But really, two years down the line we saw we were doing a lot more progress and it’s impacting the culture positively and we are doing good integration. So we renewed the vision to $50bn, not just because of the size but that $50bn is going to come with the diversification I’m talking about. We have set 2022 [to reach that target].”
Another major milestone for the firm, was bringing in Abu Dhabi’s Mubadala Investment Company as its major shareholder in 2016.
“They’ve really been very good. They’ve seen an institution that has the track record of Investcorp, that has the ambition and the vision. We constantly discuss things, we get their advice, they get our advice,” he said.
This year, a significant step for Investcorp will be to deploy its funds in its home region for the first time.
“One of the funds that we will launch soon is an infrastructure fund in partnership with a blue chip western institution to actually raise money from outside and inside the Gulf and deploy it in the GCC. This will be a beginning that can go on, bigger and bigger, to different countries. It is the first major fund [for the region]. We have not announced, but we will soon.”
It also plans to team up again with London private equity group Coller Capital, which will buy from Investcorp’s portfolio and then let the Bahrain firm manage the new fund.
“Again this has never happened in the life of the firm. [This shows innovation] and also other people are taking you seriously, which is really great.”
Looking to the future, “we really want to be one of the most respected global investment firms, with the scale and size that allows us to deploy capital in most geographies and asset sectors”.