A Historic Year for G20

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.

Ayman Maamoun Tamer, Chairman of Tamer Group, discusses how the 98-year-old family business continues to innovate and keep ethics at its core.

The value of environmental, social, and governance assets in investing has grown to US$40.5 trillion globally. How has this impacted the strategy of Tamer Group?

Companies around the globe have to act on their purpose, which now includes not only making profit but adhering to environmental, social, governance and data stewardship (ESGD). ESGD considerations are increasing in importance today. Such investment in the ecosystem opens the eyes of all industries to the need to build more sustainable business models with all stakeholders.

Tamer is a family business preparing today to introduce the fourth generation to be part of the management team. For the past 98 years serving the market in Saudi Arabia, Tamer has taken many initiatives to ensure the sustainability of the business. We have always kept the 3Ps in our strategy: people, planet and profit.

What changes have you made to make Tamer Group more sustainable?

We are working to adopt common metrics and to eventually have clear and transparent reporting on the impact that we are having on the planet and society, in addition to our other stakeholders. We need to look at climate change, nature loss and fresh water availability, among other things. And for people, we need to look at their well-being, dignity and equality, and of course their skills and development for the future.

Although it sounds simple, I have realized that adopting good governance and focusing on sustainable value creation for all stakeholders is the only way forward. This should, of course, include our planet. Examples of such metrics under governance include having a clear purpose for the company and having clear stakeholder engagement as well as ethical behaviors, such as anticorruption.

We introduced corporate governance, segregation of duties and separation of ownership from management. This journey took almost two years to complete. We adopted a new strategy to serve Saudi patients and consumers through normal and tough periods. We gained the trust of our customers by being committed to serving them by providing the best quality products at the right time. We established our corporate social responsibility arm, SA’AID, to give forward and contribute to the community through various projects.

How does your SA’AID program tie in to the Sustainable Development Goals? 

SA’AID in Arabic means “forearm,” which symbolizes the part of the body that connects the body (the community) and the hand (the company). In English, “SA” is an abbreviation of Saudi Arabia, while “AID” represents reaching out and collaborating.

The Sustainable Development Goals are a complete mission that will require further focus and resources in order to achieve transparent reporting and real progress in this domain. SA’AID is just one arm managing our social community services, which include supporting different projects that focus on health, education, women empowerment, art and culture, workplace wellness and community development.

Where do you think growth in Saudi’s pharma sector will come from over the next 10 years?

Saudi’s pharma sector grew from US$7 billion in 2015 to US$8.6 billion in 2019. Growth drivers for the total market were mainly oncology, diabetes and rheumatological diseases (immunotherapy). Vaccines and other biological drugs will also grow substantially in this market.

The government sector will remain the main driver for growth. The healthcare system in Saudi is, and will continue to be, supported by government services. Private sector contribution is increasing with a range of privatization initiatives supported by Saudi Arabia’s Vision 2030, but still the government will have the larger share of contribution.

We adopted a new strategy to serve Saudi patients and consumers through normal and tough periods. We gained the trust of our customers by being committed to serving them by providing the best quality products at the right time.

How has Tamer Group’s governance evolved over the years?

Family businesses are often precariously short-lived and are vulnerable when it comes to handing down the business, especially from one generation to another. However, such a predicament can be overcome if there is transparency, accountability, family trust, healthy discussion and good leadership. Tamer Group has been governed according to an implicit agreement based on these principles, rules and values among the members of both the second and third generations.

We have established a more formalized and structured governance within the family through a family constitution, and within the business by implementing the best corporate governance practices whether those practices are mandatorily required or not.

How has Saudi’s Vision 2030 changed the way you do business?

Digital transformation plays a major role in Saudi’s Vision 2030. Tamer Group has started to sync with the Ministry of Health in many initiatives, such as through its national screening program and the national VNA and teleradiology platforms. These initiatives help to share resources from Ministry of Health hospitals with other hospitals to reach more patients and provide the best healthcare service for the Saudi community.

The localization of all industrial sectors is a central tenet of Vision 2030. Tamer Group is on a mission to develop the organization and the healthcare industry to help increase the income of the kingdom, generate job opportunities and brighten the future for younger generations.

The group has invested in global and local startups. What are the factors that you consider before investing in a startup?

The first thing we consider in investments are the ethics of the industry that we are entering. We often look at investments that have a holistic advantage for both the family office and regionally for the holding operating group. These investments include healthcare, pharmaceuticals, medical devices, manufacturing pharmaceuticals and vaccines, consumer nutrition products, consumer goods and beauty products.

www.tamergroup.com

Nasser Sulaiman Al Nasser, Group CEO of Saudi Telephone Co. (stc), discusses how the company has developed this year to meet new challenges while continuing to focus on equality and technological advancement.

What has been your biggest challenge this year and what has been your biggest success?

Undoubtedly, the Covid-19 pandemic was the biggest challenge that we have faced this year. Yet, this terrible situation also represented an opportunity for stc to live up to its expectations as a national champion, not only from an infrastructure and customer experience perspective, but also from a corporate social responsibility perspective.

The lockdown resulted in the need for remote work, health and education, which in turn dramatically increased traffic in our network. Thanks to our technological leadership and agility, stc was able to enhance capacity rapidly to maintain the required levels of speed and reliability to support the country’s needs. Customers were able to continue operating as normal as possible and enable the accelerated adoption of new digital ways of working and accessing services.

Our large investments in the digital transformation of our customer touchpoints allowed us to seamlessly shift our interactions to safe digital channels without compromising on the high level of experience and speed that our customers have come to expect from stc. Most importantly, stc was able to contribute to ease the financial challenges that the pandemic represented to families and small businesses by providing more capacity and services for the same price and extending financial facilities.

Finally, stc was able to do well by its employees, its most important asset, by quickly adopting new digital ways of working, developing and strictly implementing health protocols to ensure the safety of all employees, and creating new working-from-home policies that will allow us not only to face this crisis but the post-Covid-19 world that is coming. All of this was achieved while stc was still able to deliver strong financial results and value to its shareholders.

How do you balance cost controls with maintaining high levels of innovation during these tough times?

We believe that it is precisely at these times that innovation, dynamism and agility are required to be able to face the challenges. Innovation is the only way forward because simple cost-cutting initiatives will not allow us to continue having a sustainable business. Our DARE strategy, which we have revised during this period, reflects our view that innovation will have to be at the center of our future business. Specifically, we will focus on innovating in the way that we extract value from assets on our balance sheet today.

We need to continue innovating so that we digitalize our operations and ways of working, so that we transform our cost in a more structural manner, drive efficiencies and gain operational agility. And we will also continue innovating in new digital products and services for our customers to complement our revenue streams, as exemplified by our successful incursions into digital financial services and digital media. We will also have to innovate in the way that we invest and enter into new opportunities, with partnerships, co-creation and new revenue models becoming more prominent, enabling us to share investments and benefits as is prevalent in the new digital economy.

Saudi Arabia has held the rotating presidency of G20 member states this year. What impact is the kingdom’s growing prominence on the global stage having on stc’s operations?

Our DARE strategy was developed with the objective of contributing to the ambitions of Vision 2030 and our shareholders. The kingdom’s presidency of the G20 has simply reinforced and made more prominent our commitment to deliver on our objectives of transforming our company into a leading digital and telecommunications player by expanding both our scale as well as our scope and venturing into new digital services like digital media and digital financial services. This prominence has also accelerated and enhanced other commitments that stc already had in the corporate social responsibility arena.

While sustainability and strong corporate governance were already part of stc’s DNA, our objective is to become a role model of corporate social responsibility and sustainability and follow the country’s leadership in contributing to the UN’s Sustainable Development Goals. To achieve this, we have clearly established this as a strategic objective in our refreshed DARE strategy and created a special top management committee to drive the implementation of our corporate responsibility and sustainability strategy.

An integral part of Saudi Arabia’s transformation process has been to open up employment opportunities for women. What is stc doing in this regard?

We are committed to having a diverse workforce across business areas and support units, simply because we believe that a diverse staff allows us to effectively draw on different perspectives to enhance the quality of our ICT services, deepen the relevance of our digital services and enhance our efficiency and effectiveness in delivering those services to our clients.

An inclusive work environment encourages different perspectives, and stc welcomes the wide range of experiences and viewpoints that both male and female employees bring to the table.

In our inclusive workplace, all stc employees at every level are valued members of the stc family. Regardless of their gender, everyone is assured the right of equitable, fair and respectful, gender-neutral treatment.

Empowering women is part of stc’s core values. This makes good business sense. We have a number of highly professional and skilled women leading functions at the middle and executive management level, and we aim to have highly talented women among our top-level management. In fact, our hiring curve of women has increased by 23% during 2020 from last year, and more than 18% of people in our leadership development program, and 33% from our specialized development program, are women.

We are committed to upholding our zero-tolerance policy for any form of discrimination, ensuring a productive work environment where differences are respected, and where opportunities and equitable treatment are afforded to all.

What can we expect from stc with regards to 5G in 2021?

We are working to deploy the largest advanced 5G network in the Middle East and North Africa. The next stage will witness an expansion of 5G in more than 71 cities across Saudi Arabia. These developments are the result of a continuous effort to enhance our network’s infrastructure and provide stc customers with connectivity diversity, coverage and reach. The expansion of the FTTH fiber optic network has delivered the highest possible broadband speed and services to home and business users. The company has also been expanding its global Internet Gateway, progressively growing the capacity of the network. We have recently signed global agreements with leading international content companies such as Google, Facebook and Akamai. The ultimate objective for stc is to deliver the best and fastest possible service to stc customers.

www.stc.com