Shariah-compliant Saudi Equity

Client-Specific Concerns

The client, a Middle Eastern financial institution, was seeking managers with proven experience investing in Shariah-compliant Saudi equities, necessitating fairly strict requirements on minimum track record (>5 years) and assets under management (>USD 200 million in conventional or Shariah-compliant Saudi equities). However, the client was willing to consider virtually any investment approach and style—apart from pure IPO, sector-specific or income strategies—and investment managers in any geographic location, whether local specialist managers or global asset managers (although familiarity with other Saudi institutional investors was considered an advantage). The investor was also willing to accept managers’ definitions of Shariah compliance, such as investing within a Shariah-benchmarked asset pool or using an internal (or external) Shariah advisory board.

Outcome

• Delivering a rigorous process: the client was familiar with the local manager universe and had its own in-house fund management capabilities; bfinance was appointed to provide an independent perspective and deliver a robust manager search process on the client’s behalf.
  
  
• Differentiating between managers: analysis was tailored to the regionally focused manager universe, where ‘team decision-making’ is prevalent (with portfolio management and buyside research functions informing high-level investment committee deliberations). Analysis of stock-specific case studies clarified the investment ‘edge’ offered by different teams in a narrow, country-specific equity market; bfinance was also on the lookout for any managers exhibiting high personnel turnover, since team stability and retention are positive differentiators in this asset manager universe.
  
  
• Assessing combinations of strategies: Since the client sought more than one manager for the mandate, the bfinance team undertook combination analysis to highlight potential complementarity between the finalists’ strategies (e.g. overlaps, correlation of returns, style exposures, scenarios and weight optimisation patterns under different portfolio-construction scenarios). This meant that as well as appraising each strategy on its own merits, the bfinance team assessed the prospective ‘fit’ of different strategies with each other and their impact on the investor’s end portfolio.