Qatar AIM fund set for London’s main market

The Epicure Qatar Equity Opportunities fund, currently listed on London’s Alternative Investment Market (AIM) is to change its name, move to London’s main market and open up to retail investors.

The $240m closed-end EQEO fund, managed by the Qatari Insurance Company, was floated on AIM in 2007, offering at the time the only pure Qatar quoted fund for foreign investors targeting the market.

The fund, incorporated in the Isle of Man, will be re-named the Qatar Investment Fund. Chairman David von Simson said there was “categorically no implicit guarantee” that the state stood behind the fund. The Qatar Investment Authority, the state’s sovereign wealth fund, did help with a 10% seeding of the EQEO, and the Qatari Insurance Company also counts the QIA as an investor, but there was no sovereign guarantee behind the EQOC fund or its proposed new structure.

Von Simson said that given the growth of the local economy, and in the run-up to the football World Cup, which Qatar is set to host in 2022, the EQOC fund wanted “greater visibility” with retail and high net worth investors worldwide.

The long-only fund paid a dividend for the first time last year but is trading at a 14% discount to net asset value, with a range over the last 12 months of 6% to 22%. Discussions have already begun with authorities on when exactly it will graduate to the main market.

It charges an annual management fee of 1.25% and a performance fee of 20%, due only when NAV rises by over 25% or when the high water mark of $1.37 is breached. The current level is $1.08. The fund has a total expense ratio of 2.1%
Nearly all (99%) the assets are invested in the domestic Qatari economy, predominantly in the financial sector via stocks like Qatar National Bank and Commercial Bank. No one stock may account for more than 15% of the assets of the fund.

The banking sector represents 52% of the QE Index and has been a major contributor to its stellar performance in the last 12 months. The solvency ratios of Qatari banks are generally over 15%.

Investment manager Sandeep Nanda said that in 2010 the fund outperformed the local stock market, its most appropriate benchmark, with the NAV rising 33% versus 24% for the QSE.

Qatar’s economic fundamentals are among the best in the region, and even among other developing markets. It is likely to be upgraded from “Frontier” to “Emerging” market status in the MSCI index shortly. With an expected GDP growth rate of over 19% this year, according to the IMF, it is the fastest growing economy in the world, with no local unemployment – it has a population 1.7m, of which Qataris number just 250,000.

The fund will invest in the considerable local infrastructure required to host the World Cup, including airports, roads, a seaport, housing and hotels. Manager Nanda said valuations in the local market remain undemanding at around 10.6x, versus a PE ratio of 16.8 for Kuwait, 15.3 for emerging markets and 11.3 for Dubai.

Asked about possible risks to the growth scenario advanced by the fund, von Simson said the factors such as unemployment, absolute poverty and lack of freedom of expression which had fuelled discontent elsewhere, were not applicable to Qatar. Nanda conceded that the local economy was vulnerable to energy price volatility, and liquidity on the tiny stock exchange was more limited than other markets.

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