Rasmala GCC Fixed Income Fund - Rasmala Investment Bank

November 2013
Rasmala Investment Bank Ltd
Rasmala GCC Fixed Income Fund
www.rasmala.com

Contents
Executive Summary 03
Features of the Rasmala GCC Fixed Income Fund 04
GCC Market Outlook 05
Rasmala - The Investment Manager 07
Investment Strategy Overview 09
The Fund Investment Process 13
The Fund Investment Guidelines 14
The Fund Management Team 15
Contact Details 16
Rasmala GCC Fixed Income Fund
02

Executive Summary
The Opportunity
The Fund
Rasmala Value Added
Fund Highlights
• The GCC countries are spending
heavily on local infrastructural
projects in order to diversify their
economies and reduce their
dependence on oil and gas
reserves.
• There is clear evidence of strong
implicit and explicit financial
support provided by many
financially sound regional
governments to their
government related entities.
• Investing in GCC securities
provides interesting
opportunities relative to issuers
in a number of other markets.
• Many GCC bonds / sukuk trade
at attractive yields relative to
their credit ratings.
• The Fund’s objective is to
primarily invest in a portfolio of
GCC bonds and sukuk diversified
by issuer, sector, geography and
credit risk profile. The Fund aims
to generate a regular income
stream and capital appreciation
through investment in well rated
government, quasi government
and corporate bonds, sukuk, and
other financial instruments. The
Fund expects to distribute semiannual
dividends around the 30 th
June and 31 st December.
• The return on the Fund is
expected to remain well above
bank fixed deposit rates.
• The Rasmala GCC Fixed Income
Fund has been a top performer in
the fixed income market since its
inception in March 2009 returning
56%* through September 2013,
to its investors.
• Rasmala Asset Management
has one of the largest and most
experienced teams in the region
with 15 investment professionals.
• Having operated in the region
since 1999 and successfully
managed fixed income funds and
portfolios since 2007, Rasmala
Investment Bank has detailed
knowledge and a deep
understanding of the debt issues
within the GCC.
*This is the cumulative return since the Fund was
• Robust investment guidelines are
applied which provide
diversification across the portfolio.
• Dynamically managed to
capitalize on anticipated changes
in credit quality, interest rates,
market sentiment and bond /
sukuk mispricing.
• The Fund has a 30% carve-out
that enables the Fund to invest in
markets outside the GCC that
have potential to outperform.
• Comprehensive risk management
processes and oversight is
employed to minimize risk.
• Third party service providers have
been carefully selected from firms
which follow international best
practice.
launched on the 31 st March 2009
Rasmala GCC Fixed Income Fund
03

Features of the Rasmala GCC Fixed Income Fund
Awards
Liquidity
Fixed Income Fund of the Year 2009 (MENA Fund Manager Performance Award)
Weekly
Structure
Open-Ended
Currency
USD
Fund Size USD 142.73 (as of end October 2013)
Domicile
Cayman Islands
Fund Manager
Rasmala Investment Bank Ltd
Custodian
HSBC Bank Middle East
Administrator
Apex
Minimum Subscription $270,000
Additional Subscription $10,000
Management Fees
0.85% of NAV
Custody Fees
0.10% of NAV
Distribution Semi-Annual (June 30 th and December 31 st )
Rasmala GCC Fixed Income Fund
04

GCC Market Outlook
• The Gulf Cooperation Council (GCC) has several of the
fastest growing economies in the world, primarily due to
a boom in oil and natural gas revenues.
• Oil prices have largely dictated the health of regional
economies however local governments are proactively
attempting to diversify their economies to reduce the
reliance on petrodollar inflows.
• The region is dominated economically by Saudi Arabia,
which generated approximately 47% of the GCC’s gross
domestic product in 2012, followed by the UAE with
23%, Qatar 12%, Kuwait 11%, Oman 5% and Bahrain
2%*.
• Oil price volatility and geopolitical tensions remain at
the forefront of investors’ minds.
• The GCC banking system currently shoulders a large
portion of the region's long term funding requirements
which is at odds with the short term liability profile of
their banks. This is being addressed through updated
financial regulation i.e. Basel III, and a greater
awareness of the liquidity risks inherent in running large
asset / liability mismatches.
• Growing demand for hotel space in the region (particularly
in the UAE), and the passing of the long awaited mortgage
law in Saudi Arabia, improve the outlook for the regional
real estate sector and are expected to pave the way for
increased construction spending and investment
opportunities.
The region has one of the world’s highest GDP per capita
*Source: Bloomberg; Rasmala Asset Management
Rasmala GCC Fixed Income Fund
05

2013 Fixed Income Outlook
• The Fed will continue to support the economic recovery until the unemployment rate declines to 6.5%.
• Market uncertainty surrounding the outlook for US monetary and fiscal policy will persist into year end.
• The Fed will not reduce the size of their balance sheet in the near term with the Fed Funds rate expected to remain
unchanged at 0% – 0.25% through to 2015.
• The short term risk to USD yields remain skewed towards the upside as investors position themselves for a
“normalization” of the USD interest rate environment.
• In the medium term we expect US growth to disappoint and interest rate pressures to subside.
• Whilst the Fed begins to taper, the bank of Japan has only recently embarked on their QE program, therefore liquidity in
the global financial system is expected to remain abundant.
• Credit spreads for longer dated GCC issuers may widen into year end on the back of a resurgence in supply and as
regional investors reduce portfolio duration.
• The rapid unwind of leveraged positions built up over a number of years will result in sporadic increases in market
volatility.
• The market uncertainty will provide opportunities to execute attractive relative value trades.
Rasmala GCC Fixed Income Fund
06

Rasmala - The Investment Manager
Overview
Regional presence
Leading regional investment banking group headquartered in Dubai
• Established in 1999, with offices in the UAE, Saudi Arabia, Oman and Egypt
• With 75 employees across the region
Shareholders include:
• European Islamic Investment Bank
• Deutsche Bank
• Management
• Prominent regional investors
Egypt
Saudi Arabia
Business lines
Operating Platform
Rasmala Holdings Ltd. (Dubai International Financial Centre)
Asset
Management
Rasmala
Rasmala Rasmala Rasmala Egypt Rasmala
Investment Bank Investments Saudi Investments
Ltd. (DIFC) CJSC Oman LLC
Asset Management Investment Banking Asset Management Investment Banking
Investment
Banking
Brokerage
Investment - Advisory Brokerage - Advisory
Banking - Arranging - Marketing
Brokerage
(non-Omani
securities)
Rasmala GCC Fixed Income Fund
07

Rasmala Asset Management
Overview
• Rasmala specialises in fund
management across the Arab
markets in both conventional and
Sharia’a compliant strategies in fixed
income, money markets and equities
• Manages a selection of fixed income
and equity funds including: a GCC
Fixed Income Fund, a MENA Equity
Fund and country specific funds
Key Funds
• Rasmala Global Sukuk Fund
• Rasmala GCC Fixed Income Fund
• Arabian Markets Growth Equity Fund
• Rasmala Palestine Equity Fund
• Rasmala GCC Islamic Equity Income
Fund
• Rasmala Leasing Fund
• Rasmala Trade Finance Fund*
*to be launched in October 2013
Rasmala GCC Fixed Income Fund
• Manages discretionary portfolios for
government entities, sovereign wealth
funds, pension plans, corporate entities
and ultra high net worth individuals
• Acts as investment advisor to additional
funds with a focus on the MENA region
• Team composed of 14 professionals:
one of the largest and most
experienced asset management
teams in the MENA region
Discretionary
Portfolio Mandates
• Sukuk Portfolios
• Sharia’a Compliant Portfolios
• GCC Fixed Income Portfolios
• Equity Portfolios in MENA, GCC and
Single Countries
• Money Market Portfolios
• Murabaha Portfolios
• Balanced Portfolios
Industry Recognition
• Award:
EGX Best Asset
Management Firm
in Egypt” award
• Awarded to:
Rasmala Egypt
Asset Management
• Period / Date:
March 2010
• Award: “Fixed “GTM/
Income Fund of
the Year” - MENA
Fund Manager
Performance Awards
• Award: “Best New
Fund” Award during
the Hedge Funds
World conference
• Awarded to:
MENA Equity
Opportunity Fund
• Awarded to:
Rasmala GCC Fixed
Income Fund
• Period / Date:
• Period / Date: 2009 March 2008
Assets Under Management (AUMs)
Equity DPMs , 41%
Equity Funds , 8%
Fixed Income DPMs , 19%
, Fixed Income Funds,21%
Money Market Funds ,10%
Alternatives, 2%
■ Funds,41%
■ DPMs,59%
08

Investment Strategy Overview
Summary of Allocations
Geographic
Allocation
Sector Allocation
Credit Rating
Coupon Type
Ownership Type
Portfolio Duration
Largest weights are to Bahrain, Dubai and Kuwait whose allocation is around 57%. Their
exposures are supported by attractive risk adjusted returns.
The largest allocation is to the financial sector which has benefited from strong systemic
support in the GCC and an improvement in the credit cycle.
The weighted average credit rating of Fund has shifted from BBB+ to BBB- in order to
provide a credit spread cushion in a rising interest rate environment.
The Fund has started investing in floating rate exposure in anticipation of a higher interest
rate environment.
Predominantly corporates which currently offer more compelling risk adjusted returns
relative to government and government related entities.
The modified duration of the Fund will be held below five years in the near term to limit
portfolio volatility.
Rasmala GCC Fixed Income Fund
09

Investment Strategy – Allocations*
Geography
Current Investment Allocation by
Industry
India
9%
Germany
2%
Abu Dhabi
4%
South Africa
Cash 1%
2%
Qatar
1%
Sharjah
1%
Bahrain
23%
Airline
4%
Telecom
5%
Insurance
2%
Retail
3%
Utility
2%
Transport
Cash 2%
2%
Oil
1%
Bank
40%
Saudi Arabia
11%
Investment
10%
Dubai
22%
Turkey
11%
Sovereign
11%
Kuwait
13%
Real Estate
18%
Source: Rasmala
* As of October, 2013
Rasmala GCC Fixed Income Fund
10

Investment Strategy – Allocations* (Cont’d)
Credit Rating
Current Investment Allocation by
Currency
Ba3
3%
B1
11%
B2
4%
A2
5%
A3
1%
Baa1
7%
TRY
1%
AED
2%
Ba2
5%
Ba1
4%
Baa2
34%
Baa3
26%
USD
97%
Source: Rasmala
* As of October, 2013
Rasmala GCC Fixed Income Fund
11

Investment Strategy – Allocations* (Cont’d)
Ownership Type
Current Investment Allocation by
Bond Maturities
Govt Related
Entity
5%
Sovereign
11%
0 - 2.5 yrs
11%
5 + yrs
51%
2.5 - 5 yrs
38%
Corporate
84%
Source: Rasmala
* As of October , 2013
Rasmala GCC Fixed Income Fund
12

The Fund Investment Process
Selection Criteria
Credit Analysis / Rating Issue Size & Liquidity Interest rate profile Duration and Convexity
Focus on Risk
The Investment Manager utilises its expertise in fixed income investing to select the most appropriate securities.
Analysing the underlying Verifying the issue size Selecting the appropriate Modified duration and
credit of the issuer and liquidity interest rate profile convexity
Focus on risk adjusted
return
The investment process
requires a detailed analysis
of the underlying credit risk
of an issuer. The credit
process is multi faceted and
employs a combination of
proprietary credit analysis,
third-party credit intelligence
and external credit rating
reports released by the
major rating agencies.
Secondary market liquidity
impacts directly on the
performance of an actively
managed portfolio. The
investment process therefore
includes an evaluation of the
expected secondary market
liquidity of instruments to be
held in the portfolio, with a
liquidity rating applied. This
liquidity rating is regularly
reviewed and plays an
important part in the asset
allocation process.
A fixed income portfolio is
exposed to both changes in
the absolute level of interest
rates and the shape of the
yield curve. These risks are
continuously monitored and
regularly reviewed to ensure
that the portfolio is
appropriately positioned for
both the prevailing interest
rate environment and any
expected changes.
Modified duration is a broad
measure of the price
sensitivity of bonds or
portfolios to small parallel
shifts in the interest rate
curve. Convexity quantifies
bond or portfolio price
changes due to larger
parallel shifts in the interest
rate environment. Both
measures are employed to
assist in the management of
interest rate sensitivity of the
portfolio.
A matrix of both quantitative
and qualitative factors are
considered when analyzing
potential investments
opportunities. Existing
investments are dynamically
managed to profit from
anticipated changes in the
macro environment,
envisaged shifts in interest
rate curves and expected
improvements or otherwise
in the underlying credit
quality of investments.
Relative value strategies are
also employed to maximize
the risk adjusted return to
investors.
Rasmala GCC Fixed Income Fund
13

The Fund Investment Guidelines
Summary: Offering Memorandum Guidelines
• Minimum 70% invested in securities of issuers that are economically tied to GCC countries.
• Maximum 25% can be invested in sub-investment grade issuers.
• Maximum average modified duration of 8 years.
Summary: Internal Guidelines
• Maximum 20% allocation to any corporate issuer.
• Maximum 30% allocation to any sovereign issuer.
• Maximum 50% allocation to any country.
• Maximum 15% allocation to any currency outside GCC or USD.
The above guidelines are subject to change based on the Fund Manager’s view of the market. The Fund Manager may adjust or readjust the portfolio out of the guidelines in order to take advantage of market mispricing
so long as the internal guidelines at no time conflict or violate the investment guidelines of the Fund as set out in the offering memorandum.
Rasmala GCC Fixed Income Fund
14

The Fund Management Team
Eric Swats
Head of Asset Management - Middle East North Africa
Prior to joining the Rasmala Group in 2003 to head its Asset Management strategy,
Mr. Swats spent 17 years with Citigroup Asset Management. At Citigroup London,
Mr. Swats served as Head of European Private Bank Asset Management and was
a member of the Global Asset Allocation Committee and Head of the European
Regional Investment Committee. Prior to working in London, he was a fixed income
Fund Manager based in Zurich and short-term fixed income Fund Manager based in
New York. Mr. Swats holds Bachelor of Arts degree from Denison University, and an
MBA in Finance from New York University. He is also a CFA Charterholder.
Doug Bitcon
Head of Fixed Income Funds & Portfolio Management
Mr. Bitcon joined Rasmala Investment Bank Ltd from European Islamic Investment
Bank Plc in 2012 where he served as Director, Debt Capital Markets for 6 years,
2 of which he was based in Bahrain. Prior to this, he worked at ABSA Bank Limited
London Branch for 9 years, initially as a Corporate Credit Analyst before taking
responsibility for the bank’s proprietary credit trading and investment portfolios which
focused on higher yielding emerging market exposures. Mr. Bitcon’s career began as
a Corporate Credit Analyst in South Africa after graduating from Natal University with
a Bachelor of Commerce degree.
Chandru Bhatia
Portfolio Manager / Analyst
Mr. Bhatia joined Rasmala Investment Bank Ltd in 2007 having served previously as
a Business Analyst at Credit Suisse in New York. Mr. Bhatia initially provided
guidance on fixed income funds and portfolios that were managed or advised by
Rasmala. In March 2009 the Rasmala GCC Fixed Income Fund was launched with
Mr. Bhatia appointed as the fund manager. Mr. Bhatia holds a Bachelor of Arts
degree in MIS from Central Michigan University and a MSc in Finance from Heriot
Watts University.
Rasmala GCC Fixed Income Fund
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Contact Details
Rasmala Investment Bank Ltd.
Dubai International Financial Centre
The Gate Village, Building 10, Level 1
P.O.Box 31145
Dubai, United Arab Emirates
Tel: +971 4 363 5600
Fax: +971 4 363 5635
Rasmala Client Service
Email: clientservice@rasmala.com
Mr. Eric Swats
Head of Asset Management
Tel: +971 (4) 424 2756
Email: eric.swats@rasmala.com
Yasmin Asalam Khalifa
Head of Asset Management Distribution
Tel: +971 (4) 424 2829
Email: yasmin.khalifa@rasmala.com
Rasmala GCC Fixed Income Fund
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Disclaimer
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Disclaimer
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Rasmala GCC Fixed Income Fund
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Disclaimer
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Rasmala GCC Fixed Income Fund
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Rasmala GCC Fixed Income Fund
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