The Bahrain-based alternative investment manager, Investcorp, opened an office in Tokyo on February 27, 2023, to provide global alternative investment solutions in Japan and set the grounds for Investcorp’s direct private equity and real estate investing in the Japanese market.
In an exclusive interview with Finance Middle East, Hazem Ben-Gacem, co-CEO of Investcorp, explains the reason behind the move. “Japan holds $14 trillion in consumer savings, surpassing the $2 trillion held in the US,” he stated. “Previously residing in savings accounts due to deflation, the current 3.4% inflation in Japan has prompted much of this capital to seek higher yields.”
Ben-Gacem anticipates that this $14 trillion will make its way into the stock markets, bond market, and secondary homes – positively influencing the investment landscape.
This expansion marks a significant entry of major Middle Eastern funds into Japan, coinciding with the growing interest of private equity groups in addressing succession issues faced by companies without successors for ageing founders.
Investcorp, managing alternative investment products for private and institutional clients, joins private equity firms like Blackstone, Carlyle, Bain Capital, and KKR to attract funds from affluent individuals. Investcorp’s Tokyo office is 14th globally and 5th in Asia, followed by Mumbai, Delhi, Singapore, and Beijing offices. The Tokyo team will bolster Investcorp’s larger Asia team, comprising 40 professionals.
Successful ADX listing
Reflecting on the successful listing on ADX, Ben-Gacem said he was very pleased and proud of the IPO amidst what he calls very difficult in economic, financial, and geopolitical times.
“Investcorp Capital is not your run-of-the-mill business to IPO, but it’s very much a testament to the interest investors have in access to alternative investments, but access to Investcorp’s business model in the Gulf, which is a model that we have had going now on for decades in a very successful manner,” he enunciated.
Investcorp Capital floated 32.85% of its total issued share capital and raised Dh1.66 billion ($451 million). The IPO gave the company a market capitalisation of about Dh5.04 billion.
Priced at the top of the Offer Price Range at Dh2.30 per share, the offering drew strong demand from regional and international institutional investors.
The company plans to pay dividends of at least Dh422 million for its financial year ending June 30, 2024, implying a dividend yield of 8.4% on an absolute and pro-rated basis and 13.5% on an annualised basis for IPO investors.
Investcorp Capital intends to use the net proceeds of the offering to develop its capital financing services business further and increase its investments into the capital deployment business of about $100 million.
“Investcorp Capital is one of the highest dividend stocks in the GCC at 8.4%,” remarked Ben-Gacem. “That is what we have committed to our investors for at least the last three years – 8.4%.”
Climate solution investing
Ben-Gacem emphasised Investcorp’s substantial investment in climate solutions. The asset manager has invested significantly in carbon-neutral and renewable energy companies, notably participating in a substantial buyout related to electricity distribution components in China.
“Most recently, we invested in the most prolific investment in the components of the distribution of electricity, which is used in anything electric, whether it’s a vehicle or storage device,” Ben-Gacem said. “And that is one of the first controlled buyouts done in China.”
“There’s a fair bit of investments in China, but very few of them actually in a controlled manner,” he added.
Looking to 2024, Investcorp plans aggressive investments in climate solutions and healthcare, addressing critical global concerns such as ageing populations.
“Aging is one of the biggest issues which touches many different parts of the world, and we expect to be quite active in making investments in those fields as well,” emphasised Ben-Gacem.
“The firm has made exciting strides over the last seven years, growing its assets under management by a factor of five. We went from $10 billion in 2017 to about $50 billion today. That momentum has only started. We have committed to reaching $100 billion of AUM in the medium term. And that journey is we are halfway through.”
“The firm has made exciting strides over the last seven years, growing its assets under management by a factor of five. We went from $10 billion in 2017 to about $50 billion today. That momentum has only started. We have committed to reaching $100 billion of AUM in the medium term. And that journey is we are halfway through.”
Hazem Ben-Gacem
What’s next for Inverstcorp?
Ben-Gacem reiterated Investcorp’s focus on three core areas—private equity, real assets, and credit—intending to sustain growth through organic and inorganic investments.
Private Equity
In addition to what Investcorp can consistently do in the middle market investing in both the US and Europe, the company is also in the advanced stages of making several new investments in the Middle East, India and Southeast Asia, Ben-Gacem told Finance Middle East.
“We [Investcorp] haven’t yet announced a controlled buyout in Japan, and I think you’ll see us quite active in those things,” stressed Ben-Gacem. He confirmed several deals at advanced stages and exclusivity, particularly in Indonesia, India and the Gulf.
Real assets
While Investcorp has traditionally been real estate-focused, its co-CEO said the asset management firm has significantly committed to infrastructure.
On the real estate front, the firm has committed to invest $1 billion into the GCC infrastructure space. This follows Investcorp’s first real estate acquisition in Saudi Arabia. The investment is a new, state-of-the-art, 215,000 square feet temperature-controlled warehouse located in Dammam. This is the first $100 million worth of real estate investments the firm is assessing in the Kingdom.
The Dammam warehouse is fully leased to Racking Systems Logistics Services Company (RTL). This third-party logistics company serves the Saudi temperature-controlled warehousing and distribution market. The investment in the Dammam warehouse – which can store up to 32,000 pallets of goods – will bring the value of Investcorp’s global warehousing logistics investments to over $4 billion, representing approximately 42 million square feet of industrial space.
Ben-Gacem also confirmed some infrastructure investments in India, both in the educational and warehousing spaces. The firm has invested $800 million in India. Its portfolio firms include Wingreens, Xpressbees, Wakefit, and FreshToHome, among others. Of this, nearly $200 million is in what the firm calls “real assets investing”.
Credits
While higher interest rates significantly impact many parts of the business, it’s a net positive for Investcorp’s credit business. Credit today is at $22 billion within the Investcorp platform. “In addition to our collateralised loan obligation (CLO) platform, we are aggressively going into the direct lending business, both in the US and Europe,” Ben-Gacem confirmed.
Change in investment trends
Regarding the shift in investment patterns, the co-CEO of Investcorp said we must recognise the impact of higher interest rates and inflation on consumers and corporations. He reckons the Fed raising interest rates by 12 hikes over eight months is very aggressive and has taken much time for corporations and consumers to react to.
“This is translating into a slowdown in real estate spending into the acquisition of new homes, slowing down and spending a meaningful increase in credit card debt, particularly in Europe, which has long-term negative concerns,” he explained.
The most significant change in the long term, according to Ben-Gacem, is around $14 trillion of wealth that is being moved from an older generation to a younger generation over the next two decades. And younger generations have two very interesting characteristics that are different from their parents – they are higher risk takers, as opposed to parents, which means that they will more likely be able to look to deploy that capital, whether it’s capital markets, public markets or alternative investments.
The younger generation is more comfortable making their own decisions. “That brings private wealth initiative significantly more front. Investcorp is one of the oldest and biggest in the Gulf today that taps into private wealth channels for alternative investing,” he reiterated. “And we see that trend globally, and that’s why we will be setting a flag in Japan on the private wealth fund very much to tap into that $14 trillion going to the next generation.”
Mitigating risk
When asked about mitigating risks in investment decisions, Ben-Gacem said it was virtually impossible to target a 20% return without taking a particular element of risk.
“Those returns are generated because we’re taking risks. However, risks need to be measured, managed, studied and controlled,” he said.
Ben-Gacem remarked that investing has never been the issue, and it’s not the access to investments that differentiates Investcorp. What differentiates Investcorp is the vetting process on how we go about reviewing and assessing the risk and those investments and then making them a measured decision.