Money managers under the microscope
Investing in Egypt after the revolution: A fund manager’s view
It has been two weeks since Hosni Mubarak was removed from his 30-year rule in Egypt. Banks are open and many Egyptians have resumed their jobs, but the country’s stock market remains closed and investors are wary about region. Should they be?
Ahmed Fattouh, an Egyptian-American investor and chief executive of hedge fund and private equity firm Globalist Capital Management, spoke to Reuters about his thoughts on investing in Egypt after political turmoil. Fattouh, whose firm has offices in New York, London and Dubai, oversees about $300 million in assets and has been investing in the Middle East since 2005. He visited Cairo and Tahrir Square in the past few weeks and shared his thoughts.
Q: Ahmed, where are the opportunities to invest in Egypt given all of the turmoil?
A: Obviously there are going to be some distressed opportunities and this is a volatile time. The market has been closed for weeks, and obviously when it reopens there will be a good deal of selling pressure. That will obviously create some opportunities in terms of forced sellers and panicked sellers who will not be very focused on the fundamentals.
Q: What kind of investors are in Egypt now?
A: In Egypt, and in the Middle East in general, you don’t have a lot of true institutional investors. You do have some funds, but retail is a large proportion of the total. Gulf Arabs are a significant proportion and then you have foreign investors. Foreign investors, while they tend to look more at fundamentals than the retail market and regional investors, they are a bit more jittery because they have had a pretty difficult time trying to analyze the political outlook. For them, while there are opportunities, many of them are long-only investors who may take a wait and see attitude or step back and say maybe there are other places to make emerging markets plays. Meanwhile, the retail investors obviously are motivated by fear and greed, and when they start to see the sort of uncertainty you have right now, they sell first and ask questions later. Though western hedge funds and smaller funds that have a special situations or distressed bucket will be looking at Egypt pretty carefully.
Q: What else should investors think about in navigating the political environment?
A: The big question mark in Egypt is whether there is going to be a push for nationalization. I don’t think the State wants to own the assets itself, though certain of these companies that had advantages in their relationship with the government, may see some of those advantages taken away. I think it is important though, to make a distinction between anti-corruption and anti-business and that when the government is making policy they will have to be very surgical about the sorts of remedies they take against the corrupt business practices that were prevalent in Egypt.
Q: What is the long-term outlook?
A: You have quite a few listed companies that have very strong long-term fundamentals and once you kind of get through the period of uncertainty the outlook for these businesses is very sound. One of the main activities investors look at in the region is private equity and infrastructure investing. One of the biggest impediments to private equity was the lack of certainty around political succession — no one knew what came after Mubarak and no one wants to make an investment that has a five to eight year time horizon without knowing what is happening politically. Now you could have a political process that gives you some comfort there could be rule of law.
Q: What sectors should investors think about in Egypt? Which ones would be attractive to foreign investors?
A: Egypt is a country that has a population of 80 million people, and as we saw in this revolution, a lot of them are very internet savvy and very much participants in the modern world. So I think we are seeing venture capitalists take heed of a market they had not thought much about. Looking at Egypt’s ability to be a tech hub is something that people are definitely looking at. If you end up having a functioning political system that has good rule of law and private equity investors have the comfort to make longer term bets, they could look at consumer discretionary, oil services and other sectors.