Wednesday, Apr 1, 2020
International Finance
coverstory Magazine

Alinma Investment: Building sophisticated products for the Saudi investor

Alinma Investment Company is dynamically creating investment products for one of the youngest and most technologically savvy populations of the world

Alinma Investment Company, a Saudi closed joint stock company wholly owned by Alinma Bank, was established by the bank with a capital of SAR1 billion and a paid-up capital of SAR250 million. The purpose and scope of the company was to become a leader among the top investment companies in the region that offer Shariah-compliant investment products and services. The company is known for the use of the best and latest communications technologies and advanced technological systems to drive customer centricity.

Alinma Investment obtained its Capital Market Authority licence on April 2009 and launched its operations at beginning of 2010. The company is currently involved in a number of activities including operating as a principal and agent, conducting underwriting, investment funds management, portfolio management, arrangement, as well as providing advisory and custodial services for securities business. As of end of 2019, the total assets under management of the company surpassed SAR60 billion ($16 billion).

Today, Alinma Investment operates the largest three real estate development funds in Saudi Arabia, the largest public real estate income-generating fund in Saudi Arabia, and the highest number of endowment funds in Saudi Arabia. The company’s vision is to be the preferred financial investment partner of Saudi citizens and it is steadily working toward becoming the leading company that provides innovative and Shariah-compliant investment products, solutions, and services in Saudi Arabia. In an exclusive interview with International Finance, Mazin Fawaz Baghdadi, CEO of Alinma Investment Company, speaks about the key role it is playing in to increase the investment options of the sophisticated Saudi investor with sound and viable investment products and its track record of successfully managing the investments of Saudi citizens.

International Finance: How will the Makkah Real Estate Development Fund impact the development of the Holy City and the diversification plans of the Kingdom?

Mazin Fawaz Baghdadi: Our new Makkah fund will be investing in the development of seven hotel towers and two commercial complexes within the King Abdul Aziz Road project. The fund’s investments will assist in the completion of King Abdul Aziz Road project which is one of the most promising infrastructure development projects in the Kingdom.  The increase in hospitality rooms supply aims to benefit from the ambitious planned increase in the number of pilgrims to the Holy City of Makkah to 30 million by 2030. This will in part help the Kingdom’s vision to diversify the Saudi economy away from oil.

Increasingly Saudi investors are investing in funds for their retirement. What is Alinma’s advice to such investors?

For any investor, retirement is very special moment in their life that they have to carefully plan for. The financial preparation needed for a retired life can be summarised in the phrase ‘balanced and rewarding savings’. Funds come in different types and investment styles that make available a variety of investment vehicles of different returns and risk levels. The variety in the funds enable different investors to choose their investment options according to their own investment objectives. Therefore, the objectives are to be built upon on a number of factors including expected age at retirement, current wealth and expected wealth at retirement, and expected basic needs at retirement such as housing, health care, and education needs. Our recommendation is to always balance your savings from return and risk perspectives by diversifying your investments into different asset classes through investments in several funds spread across equities, money markets, income generating funds, and so on.

What is the impact of the Aramco IPO on the Saudi mutual funds sector?

Of course, Saudi Aramco is the largest company in the world in terms of both profits and market capitalisation and is expected to be a major part of any equity investment either directly or through mutual funds. We also expect Aramco’s listing on the Tadawul to further attract more local and foreign investors to Aramco and to the Saudi market in general, which will enable more research coverage as well as more liquidity sources in the market, which are healthy signs of any market. We are confident that such a giant company like Aramco is a viable investment for the long-term investors, and it is already part of global benchmarks as we have already witnessed with MSCI indices, among others.

How is the Alinma Enayah Endowment Fund expected to impact patient care in the Kingdom?

The fund distributes dividends in order to support spending on healthcare expenditure. It employs profits to enhance healthcare support through the Charity Foundation for Healthcare ‘Enayah’. Such services and overheads of expenditure include:
Offering free medical services at the private or governmental hospitals and mobile clinics
Providing nursing services for the chronically ill, disabled, and patients who lack family support
Providing medicines that are either not available or are too expensive and are for long time use.
Providing prosthetic devices or supporting diagnostic assistance
Increasing awareness and health education, fighting epidemics, training staff and assisting with qualifications as well as organising seminars and conferences
Providing disease preventive services and vaccinations

With increasing private investment in Saudi Arabia, a sophisticated client base is expected to demand a broader range of products and lower fees from Saudi asset managers. How will Alinma Investment meet this challenge?

Of course, any investment is a cooperation between all parties involved including investors, assets managers, and end users. We at Alinma Investment Company are following a strategy to not only build certain products and services, but also to involve clients in structuring and introducing some products that are suited to such clients’ investment objectives. If you look at our current products range, you will find that we are covering a full range of products and services including products investing in equities and money markets, real estate as well as education and religious tourism, among others. In addition, we are introducing these investments through different investment vehicles including public and private funds and discretional portfolios.

As for fees, we are not reluctant to cooperate with our clients to have fair and justified fees levels. We are also confident that our clients value the quality and sophistication we provide when structuring and executing our products that satisfy their investment objectives.

What is Alinma’s role in the development of Awqaf investment funds and what role do these funds play in the development of endowments in the Kingdom?

AIC led the initiative to launch the first endowment fund to contribute to achieving the vision 2030 goals by attending and speaking in workshops that were managed by the General Authority of Awqaf and CMA. The Kingdom’s Vision 2030 encourages endowments to enable this sector to obtain sustainable financing sources, and to facilitate the establishment of non-profit organisations for the affluent. The vision also encourages leading companies to activate their role in social responsibility and expand the scope of the non-profit sector, and enabling non-profit institutions and associations to attract the best talents capable of transferring knowledge and applying best management practices. In addition, applying this well organised and regulated vehicle in the form of mutual funds will help the non-profit sector contribute more effectively to important sectors such as health, education, housing, research, social programmes, and cultural activities.

What are the challenges facing the funds sector in Saudi Arabia and how is Alinma preparing to face these challenges?

The good news is we see the challenges we face as motivation for improvement and growth. So, we believe that we need to widen the reach of clients to these types of investment vehicles. Fortunately, we are currently witnessing changes in Saudi Arabia including implications of the Vision 2030, which aims through its Financial Sector Development Programme to stimulate investment, finance, and savings. We at Alinma Investment Company are striving to introduce as many viable and sound products to attract more clients who are targeting investment and savings or in need for financing for all time horizons (short, medium, and long terms). We hope that with professional teams and advanced technology and by using our partnerships we can acquire even more market share in this large and promising sector in Saudi Arabia.

What is the role that the Saudi funds industry and Alinma are playing to achieve the Kingdom’s Vision 2030 goals?

As we said earlier, one of the major programmes in Vision 2030 is the Financial Sector Development Programme that aims among other goals to stimulate investment, finance, and savings. Alinma Investment Company and other asset managers are continuously surveying markets to be able to introduce as many viable and sound products satisfying all types of clients and different investment objectives and risk appetites.

Alinma Investment has become a market leader in Alternative Investment Funds.  What is Alinma’ s vision for Alternative Investments Going forward and how will it contribute to the Vision 2030?

Alinma Investment has been successful in attracting and managing over SAR50 billion across multiple alternative investment funds.  Our vision is to continue in meeting our clients demand for such asset classes and to continue offering and creating tailormade Shariah-compliant financial structures.   In doing so, we aim to contribute to the kingdom’s 2030 Financial Sector Development Programme.

How does Alinma see the Saudi securities market develop to cater to the needs of the sophisticated retail investor in the next five to ten years?

We clearly see several improvements in the Saudi markets that certainly will be of value for such investors including:
Improvement in market regulations in line with international regulations
More integration between investment and financing activities
Opening local markets to foreign investors
Introduction of short selling, futures, and other derivatives
Introduction of new markets (Nomu-parallel market is an example)
All these improvements in addition to the healthy competition between asset managers is leading to the introduction of more viable and innovative products and to the deployment of more advanced technologies.

Among the younger generation in the Kingdom, the uptake of technology innovations, especially fintech innovations, is quite high in Saudi Arabia compared to the rest of the region. How is Alinma Investment evolving to meet the financial needs of this digitally savvy segment of the population?

Alinma Investment Company along with its partners are at the forefront of the technologically innovative asset managers to get into this domain and we are capable of capturing the fast growth enabled by technological innovations. It is worth mentioning that nowadays, all of the products of the company are easily accessible online including through mobile applications.

What is your outlook for the Saudi funds industry for the next five to ten years and what is the role that Alinma Investment will play in it?

We expect a smooth growth in the exposure of investors in Saudi Arabia to funds considering the interest of the Saudi government in its vision 2030. This is supported by Financial Sector Development Programme that aims among other goals to stimulate investment, finance, and savings. All these factors lead to improvement in fund operations and size considering the need for professionalism in asset and risk management in volatile markets. The company will certainly be at the forefront of such activities and we hope to be one of the best fund managers in the market. The company is not only taking initiatives to present viable products and services to investors but it is also considering investors’ suggestions and requirements in building the company’s products. As such, for the coming five to ten years, we expect to continue our current plans in diversifying our products in classical investments such as equities, money markets, and real estate and to possibly cover new geographical regions and new sectors. In addition, we expect to introduce further new products covering additional sectors such as new technologies and financial derivatives and so on. All of this will, of course, be in accordance with Shariah regulations.

What is your opinion of the Saudi Arabian regulatory environment for funds and where do you see scope for improvement?

In any market, fund regulations are very dynamic and change with time especially when the need to strengthen and improve the investment environment and to consider changes in technologies and investor attitudes is pronounced. We believe the Saudi Arabian authorities are taking all measures to correct and improve all shortcomings in the regulatory environment and make the Saudi markets a focal point of regional as well as global investors considering the size and importance of the Saudi economy in the world.

Among the fund and asset managers that operate in Saudi Arabia, what are Alinma Investment Company’s key differentiators?

Alinma Investment Company is among the best in market and the following are our noteworthy differentiators:

Providing a full range of Shariah-compliant investment products and services

Striving to lead the Saudi investment funds market

Innovation-based approach wherein we are open to discussing all ideas and improving products and services according to investors’ needs

As part of the Saudi community, we strive to impact this community and we seek to be impacted by this society

Developing interrelationships with and among competitors to ensure the health of markets and to enhance the Saudi economy.

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