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Abu Dhabi, UAEWednesday 20 June 2018

Biggest US state fund to invest in Middle East via Abu Dhabi-based fund

Alaska Permanent Corporation Fund to seed Middle East, Africa and South Asia McKinley fund

Alaska Permanent Fund Corporation to invest in Middle East via ADGM-based fund managed by McKinley Capital. Mona Al Marzooqi / The National
Alaska Permanent Fund Corporation to invest in Middle East via ADGM-based fund managed by McKinley Capital. Mona Al Marzooqi / The National

The Alaska Permanent Fund Corporation (APFC), a wealth fund for the oil-rich state that has US$65 billion of assets under management, will be an anchor investor in a Middle East, Africa and South Asia (Measa)-focused fund that will be managed by US-based McKinley Capital.

The fund will be based in Abu Dhabi Global Market (ADGM) through a joint venture between the Abu Dhabi family office Al Maskari Holding and McKinley Capital, a quant asset manager that oversees more than $6bn, according to Peter Lejre, an adviser to Al Maskari Holding.

Mr Lejre, who will be the senior executive of the joint investment platform, named McKinley Management Middle East, said the fund is expected to be launched in the next month or two.

“[Measa] is a very interesting opportunity to invest into,” Mr Lejre told The National.

“From a population point of view, it is a very young population and it’s expected to keep growing. As the economies continue to grow, you would expect the capital markets to become more important.”

The Measa region has garnered the attention of investors in recent years as many indexes in developed markets touch record highs, putting a damper on growth expectations.

Franklin Templeton Investments, a global fund management firm, said in October it may increase its Saudi Arabian equities exposure to as much as $1.16bn, about 4 per cent of its $29bn global emerging markets portfolio, as the biggest Arab economy continues to liberalise its capital markets.

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The APFC will be an anchor investor in the fund, which could grow to as much as $8bn, Mr Lejre said. The contribution of the Alaskan investor to the fund is significant, he said, without giving a precise figure.

The move by McKinley to set up shop in ADGM is another feather in the cap for the nascent financial centre after it rose in the ranks of a key financial centre index in September. ADGM climbed three places to No 25 in the closely-watched Global Financial Centre Index, compiled every six months by London market intelligence firm Z\Yen.

To boost its attractiveness, ADGM has, among other things, streamlined regulations in the past year for funds to set up base in the financial centre.

Its efforts are paying off and since opening doors three years ago, the onshore financial hub has attracted more than 50 fin­ancial service firms as it aims to increase the contribution of the financial sector to Abu Dhabi’s economy.  

“As an Abu Dhabi family group, we are naturally keen to support ADGM in its objective to become the financial hub for the broader region,” Mr Lejre said.

“By having the largest [state-level] US sovereign investor seed a fund in ADGM, which is launched by a leading quant manager, we demonstrate the strength of ADGM to act as a gateway to the region.”

He said the move to create the fund follows discussions he has had over the attractiveness of the Measa region as an investment destination, with Alaska Permanent’s chief investment officer Russell Read, when they both worked at the Gulf Investment Corporation in Kuwait.

Mr Lejre said the region is home to 44 per cent of the global population and yet only accounts for 11 per cent of the world’s GDP. These geo­graphies also account for 6 per cent of the global market capitalisation of publicly-traded companies but the equities here have only 2 per cent weighting in the MSCI All World Index.  

“Couple that with a young and fast-growing population, and you have strong potential for growth,” he said.

Since many of the region’s equity markets are underdeveloped and not very liquid, a quantative approach was deemed a more effective way to invest, he said, which is why McKinley Capital, with a track record of more than 25 years, was chosen as the manager, he said.

“Several countries are not necessarily easy countries to access, there are restrictions on what you can do and there is limited liquidity and it is hard for an institutional investor to effectively invest at scale across a diversified set of countries and securities,” Mr Lejre said.