Samer Abu Aker, CEO of SEDCO Capital, reveals how the firm has maintained its strong performance with investment solutions to create value today with a focus on sustainability for tomorrow.
What does SEDCO Capital do?
SEDCO Capital is a global Shariah-compliant and ethically led multi-asset manager. We are headquartered in Jeddah, Saudi Arabia, with offices in Riyadh, London and Luxembourg. We invest in Saudi Arabia, the GCC, the U.S., Europe, Latin America and Asia and our total assets under management (AUM) currently exceed US$5 billion. We provide our sophisticated clients with comprehensive investment solutions across diversified asset classes all over the world. Our clients consist of high net worth individuals, family offices, endowments and financial institutions. Our primary asset classes are public equity, private equity, real estate and fixed income. We have our full asset class suite exposure in the U.S., Europe, the U.K. and Asia, and we also have interests of private equity in Latin America and public equity in Brazil. Our Luxembourg platform is one of the largest of its kind in the world in terms of Shariah-compliant funds and AUM, and provides our investors with access to European opportunities.
How has SEDCO Capital’s Prudent Ethical Investment approach helped it outperform the market?
SEDCO Capital’s proprietary Prudent Ethical Investment (or PEI) approach is characterized by the sophisticated fusion of Shariah-compliant principles with responsible investment (RI) principles, particularly as they relate to environmental, social, and governance (ESG) adherence.
Responsible investment has been growing in significance for years among regional and international investors. In terms of investor segments, financial institutions and endowments have been increasingly pivoting toward RI, and, demographically, millennials have also demonstrated an accelerated propensity in the same direction. Importantly, RI represents an enormous market size, with current AUM at US$89.7 trillion. Notably, US$29.5 trillion covers listed equities and fixed income and US$30.7 trillion represents RI strategies.
Shariah-compliance requires the additional screening of balance sheet ratios such as leverage, cash and interest-bearing securities, and/or the ratio of accounts receivable to market cap or total assets (whichever is greater). Lower financial leverage and better cash conversion result in a bias toward quality and growth, thereby underscoring the significance of the “prudence” element in the PEI approach. We believe the tactful merging of both schools of thought has enabled us to outperform purely conventional investment approaches over many years on a risk-adjusted basis.
For example, the SC Europe Equities Fund, which follows a PEI approach including negative screening, active ownership/proxy voting and ESG screening, outperformed on annual return basis for the past five years the Dow Jones Islamic Market Europe index by 1.21% and MSCI Europe Index by 7.18%. Similarly, the SC Global Sustainable Equity Fund outperformed on annual return basis for the past five years the Dow Jones Islamic Market World index by 0.64% and MSCI World Index by 4.74%. This means our clients benefit from greater return with lower volatility when investing within a multi-asset class framework, while adhering to the pillars of ethical investing.
What factors do you look at when you consider exiting an investment?
We invest in attractive real estate opportunities, which we term Core and Core Plus, in locations across Europe, the U.K. and the U.S. We look primarily at the office, logistics, education and healthcare subsectors. The average internal rate of return of our real estate portfolio is approximately 7%.
We ensure that every decision taken over the course of a real estate investment is value-enhancing for potential buyers. The most successful exit strategy requires a well-tailored business plan prior to any investment decision. An exhaustive scrutiny of all possible scenarios helps allay concerns and mitigate potential obstacles that may arise during the exit phase. We evaluate each potential investment with the end in mind. This means paying special attention to all aspects that a buyer will consider prior to making the purchase decision, including the suitability of the asset location, asset quality, tenant credibility and financial position, and lease type.
How has Saudi’s Vision 2030 impacted your investment decisions?
Vision 2030 has created several benefits for global multi-asset managers. Firstly, it created a roadmap by highlighting certain economic growth sectors within the kingdom that are expected to flourish in the future, and around which we can expect to see increased investment activity. As a result, this has provided greater visibility for long-term planning and increased confidence in our investment-decision making. Another factor is the increased transparency in reporting macrostatistics, which is always a good thing for global investors who could be keen to invest with us in-kingdom. Thirdly, we believe putting Saudi Arabia on the map will be a boon for these Shariah-compliant investments going forward, and therefore we feel very well positioned to create value for existing and potential clients.
Which asset classes do you think will outperform in 2021, and why?
Clearly the ongoing pandemic has created unexpected risks, which are inherently difficult to control. However, it has also opened several new opportunities. We believe public and private equity markets will benefit from a continued quest for growth, albeit at the cost of lower returns than in the past decade for as long as Covid-19-related uncertainty remains.
Thanks to the unprecedented support from policymakers all across the globe, the current low interest rate environment is expected to persist for the next few years without posing any short-term threat to financial stability before inflation starts to raise its head. Against this backdrop, we believe that some exposure to higher-income asset classes, such as real estate (including global REITs) and both listed and private infrastructure is warranted in order to both provide superior income streams and a longer-term hedge against higher inflationary pressures.
What effect will the G20 resolutions have on assets in Saudi and globally?
It is difficult to comment on the impact of G20 resolutions without knowing the content of such resolutions. It is a privilege for all kingdom-based business organizations that Saudi Arabia is presiding over such a prestigious economic forum.
The critical issues that will be discussed will be around ensuring the sustainability of our planet and the people who inhabit it through empowerment, innovation and cooperation. SEDCO Capital has been recognized internationally for its commitment to responsible investment. As the first Saudi Arabian and Shariah-compliant asset manager to be a signatory of the UN-supported Principles for Responsible Investment (PRI), we are well positioned to be active participants in shaping the type of future that this year’s G20 meeting envisions.
In 2020, SEDCO Capital was awarded the highest possible rating by the PRI in recognition of our approach to responsible investing and integrating ESG factors into the investment solutions that we create for our clients.