THE MIDDLE EAST IN EUROPE ISSUE 16 | BUSINESS ARTICLES

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No 16 | April - May 2008

Spotlight Somaliland European humanitarian aid in Lebanon Saxo sets sights on MENA Understanding hedge funds Orientalist surprise Egypt off the beaten track

Tenth Edition amsterdam ANNET GELINK GALLERY; JULIETTE JONGMA,

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AMSTERDAM; GALERIE DIANA STIGTER; GALERIE FONS WELTERS antwerp STELLA LOHAUS GALLERY; ZENO X GALLERY athens THE BREEDER barcelona NOGUERAS BLANCHARD berlin ARNDT & PARTNER BERLIN / ZURICH; GALERIE GUIDO W. BAUDACH; BUCHMANN GALERIE; CONTEMPORARY FINE ARTS (CFA); GALERIE CRONE; GALERIE EIGEN+ART LEIPZIG / BERLIN; JOHANN KÖNIG; GALERIE GITI NOURBAKHSCH; GALERIE THOMAS SCHULTE; GALERIE BARBARA WEISS; GALERIE JAN WENTRUP bern GALERIE FRANCESCA PIA brooklyn PIEROGI brussels GALERIE BARONIAN-FRANCEY; GALERIE ERNA HÉCEY cape town MICHAEL STEVENSON GALLERY chicago SHANE CAMPBELL GALLERY; RHONA HOFFMAN GALLERY cluj-napoca, romania PLAN B cologne GALERIE CHRISTIAN NAGEL; JOHNEN/SCHÖTTLE, COLOGNE / BERLIN / MUNICH dresden GALERIE GEBR. LEHMANN dublin KERLIN GALLERY dusseldorf GALLERY DENNIS KIMMERICH; SIES+HÖKE edinburgh DOGGERFISHER glasgow SORCHA DALLAS; THE MODERN INSTITUTE hamburg PRODUZENTENGALERIE HAMBURG; SFEIR-SEMLER, HAMBURG & BERUIT karlsruhe MEYER RIEGGER GALERIE london THE APPROACH; CORVI-MORA; THOMAS DANE GALLERY; DICKSMITH GALLERY; CARL FREEDMAN GALLERY; FRITH STREET GALLERY; GREENGRASSI; HERALD ST; HOTEL; IBID PROJECTS; ALISON JACQUES GALLERY; SIMON LEE GALLERY; LISSON GALLERY; VICTORIA MIRO GALLERY; THE PARAGON PRESS; STORE; STUART SHAVE / MODERN ART; SUTTON LANE; TIMOTHY TAYLOR GALLERY; WHITE CUBE/JAY JOPLING; WILKINSON GALLERY los angeles ACME; ANGLES GALLERY; BLACK DRAGON SOCIETY; BLUM & POE; CHINA ART OBJECTS; MARC FOXX; ANNA HELWING GALLERY; DAVID KORDANSKY GALLERY; PATRICK PAINTER, INC; RICHARD TELLES FINE ART; SUSANNE VIELMETTER PROJECTS; CHERRY AND MARTIN lucerne GALERIE URS MEILE madrid PILAR PARRA & ROMERO GALERIA DE ARTE miami FREDRIC SNITZER GALLERY milan GALLERIA MASSIMO DE CARLO naples RAUCCI / SANTAMARIA new delhi NATURE MORTE new york 303 GALLERY; ATM GALLERY; BELLWETHER; MARIANNE BOESKY GALLERY; TANYA BONAKDAR GALLERY; BORTOLAMI; CANADA; CHEIM & READ; JOHN CONNELLY PRESENTS; CRG; D’AMELIO TERRAS; ELIZABETH DEE GALLERY; DEITCH PROJECTS; DEREK ELLER GALLERY; RONALD FELDMAN FINE ARTS, INC; ZACH FEUER GALLERY; FOXY PRODUCTION; GREENBERG VAN DOREN GALLERY; GREENE NAFTALI; MURRAY GUY; HARRIS LIEBERMAN; PAUL KASMIN GALLERY; SEAN KELLY GALLERY; ANTON KERN GALLERY; NICOLE KLAGSBRUN GALLERY; LEO KOENIG INC.; ANDREW KREPS GALLERY; LEHMANN MAUPIN; LOMBARD-FRIED PROJECTS; MATTHEW MARKS GALLERY; MITCHELL-INNES & NASH; CAROLINA NITSCH; PACEWILDENSTEIN; FRIEDRICH PETZEL GALLERY; POSTMASTERS GALLERY; THE PROJECT; DANIEL REICH GALLERY; RIVINGTON ARMS; JACK SHAINMAN GALLERY; SIKKEMA JENKINS & CO; JACK TILTON GALLERY; WALLSPACE; TRACY WILLIAMS LTD; DAVID ZWIRNER paris ART:CONCEPT; GALERIE CHEZ VALENTIN; GALERIE KAMEL MENNOUR; IN SITU; YVON LAMBERT PARIS / NEW YORK; GALERIE EMMANUEL PERROTIN; GALERIE PRAZ-DELAVALLADE; GALERIE ALMINE RECH; GALERIE THADDAEUS ROPAC reykjavik I8 rome MAGAZZINO D’ARTE MODERNA san francisco JACK HANLEY GALLERY; RATIO 3 san gimignano GALLERIA CONTINUA seoul KUKJE GALLERY stockholm ANDRÉHN-SCHIPTJENKO; BRÄNDSTRÖM & STENE; GALLERI MAGNUS KARLSSON; MILLIKEN tel-aviv SOMMER CONTEMPORARY ART tokyo TAKA ISHII GALLERY; GALLERY SIDE 2; HIROMI YOSHII vienna ENGHOLM ENGELHORN GALLERIE; GEORG KARGL; GALERIE KRINZINGER; GALERIE MEYER KAINER; GALERIE NÄCHST ST. STEPHAN zurich MAI 36 GALERIE; GALERIE EVA PRESENHUBER; BOB VAN ORSOUW GALLERY; HAUSER & WIRTH ZURICH LONDON not-for-profits ART IN GENERAL; MAGNUM PHOTOS; NEW

MUSEUM OF CONTEMPORARY ART; SCULPTURE CENTER; SWISS INSTITUTE; WHITE COLUMNS

brussels 26th CONTEMPORARY ART FAIR

18 - 21 april – artbrussels.be Aeroplastics Brussels I Aidan Moscow I Albion London I Aliceday Brussels I Andersen_S Copenhagen I Asbaek Projects Copenhagen I Aschenbach & Hofland Amsterdam I Baronian-Francey Brussels I Bärtschi Geneva I Bernier/Eliades Athens I Bitforms New York I Bjerggaard Copenhagen I Blancpain Geneve I Bodhi Art New Delhi I Box Brussels I Brolly Paris I Brown London I Buchmann Berlin Lugano I Bugdahn und Kaimer Düsseldorf I Carreras Mugica Bilbao I Cerami Couillet I Chinese Contemporary New York I Conrads Düsseldorf - Berlin I Crown Brussels I Cueto Project New York I D&A Lab Brussels I De Brock Knokke I De Villepoix Paris I de Voldère New York I Deweer Otegem I Diaz Madrid I Espai2nou2 Barcelona I Faurschou Copenhagen I Fiat Paris I Fournier Paris I Galerie 19002000 Paris I Galleri K Oslo I Geukens & De Vil Knokke I Giroux Paris I Godin Paris I Grimm Amsterdam I Grusenmeyer Deurle I Gutharc Paris I Hécey Brussels I Hoet Bekaert Gent I Hufkens Brussels I Hussenot Paris I In Situ Aalst I Insam Vienna I Invernizzi Milano I Jamar Antwerpen I Janssen Brussels I JGM Paris I Karpio San José De Costa Rica I Kleindienst Leipzig I Koraalberg Antwerpen I Krinzinger Vienna I Kudlek Van der Grinten Köln I La Citta Verona I Le Borgne Paris I Lee London I Leo Koenig New York I Les Filles du Calvaire Paris - Brussels I Lia Rumma Napoli - Milano I Loevenbruck Paris I Lorcan O'Neill Roma I Maes & Matthys Antwerpen I Maruani & Noirhomme Knokke I Mauroner Vienna I Max Estrella Madrid I Meert Brussels I Mennour Paris I Minini Brescia I Moser Geneve I Mulier Mulier Knokke I Nelson - Freeman Paris I Nicolai Wallner Copenhagen I Nosbaum & Reding Luxembourg I Obadia Paris I Papillon Paris I Paviot Paris I Photo & Contemporary Torino I Pieters Knokke I Polaris Paris I Praz-Delavallade Paris I Rech Brussels - Paris I Regina Moscow I Rein Paris I Rolt Amsterdam I Ronmandos Amsterdam I Rubenstein New York I Rubicon Dublin I Rumpff Haarlem I Ruzicska Salzburg I Schmidt Maczollek Cologne I Sels Düsseldorf I Senda Barcelona I André Simoens Knokke I Stephane Simoens Knokke I Soskine Madrid-New York I Sparta Chagny I Stolper London I Svestka Prague I Szwajcer Antwerpen I Tache-Levy Brussels I Tanit München I Tarasieve Paris I Taylor London I Templon Paris I Thoman Innsbruck I Transit Mechelen I Triangle Bleu Stavelot I Tucci Russo Torino I Upstairs Berlin I Vallois Paris I Van Laere Antwerpen I Vanhoegaerden Knokke I Vidal Paris I Vilenne Liège I Nicolai Wallner Copenhagen I XL Moscow I Zander Köln I Zürcher Paris I Zwarte Panter Antwerpen YOUNG TALENT: 1/9 Unosunove Roma I AD Galerie Athens I Adamski Aachen I ADN Galeria Barcelona I Alice Brussels I Amaro Lisboa I Apartment Athens I Arquebuse Geneva I Art Agents Hamburg I Bischoff/Weiss London I Cortes Lisboa I Cortex Athletico Bordeaux I De Bruijne Amsterdam I De March Milano I Dependance Brussels I Desimpel Brussels I F A Projects London I Figge Von Rosen Cologne I Gazon Rouge Athens I Gold London I Grimm München I Groeflin Maag Zürich I Hauff Stuttgart I Hustinx Liège I Klemm's Berlin I Levy Brussels I Low Gstaad I Lynch New York I Mertens Berlin I Metis_NL Amsterdam I Milliken Stockholm I Mitterrand + Sanz Zürich I Mogadishni Valby I Motive Amsterdam I Nyborg Valby I Parker's Box Brooklyn I Salon 94 New York I Scharmann Cologne I Skuc Ljubljana I Sutton Lane London I The Agency London I Wentrup Berlin I Zwart Huis Knokke FIRST CALL: Cosmic Paris I Duvekleemann Berlin I Fruit and Flower Deli New York I Ibid Projects London I Jozsa Brussels I Luxe New York I Adreiana Mihail Bucarest I Office Baroque Antwerpen I Pollazzon London I Rotwand Zürich I Shugoarts Tokyo I Upstream Amsterdam I Van Zomeren Amsterdam I Klara Wallner Berlin (January 2007)

Preview & Vernissage I 17 April (invitation only) Opening hours I 18, 19, 20 April I 11am – 7pm Finissage I 21 April I 11am – 10pm Place I Brussels Expo I Halls 1 & 3 Info I www.artbrussels.be

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Issue 16 | April - May 2008 ISSN 1749-8627 Editorial T +44 208 392 1122 F +44 208 392 1422 E meegen@eapgroup.com Subscriptions T +44 208 392 1122 F +44 208 392 1422 E subs@eapgroup.com Advertising Sales T +44 208 392 1122 F +44 208 392 1422 E sales@eapgroup.com W w ww.meenet.info

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NEWS & DIARY Kosovo ripe for GCC investment; consumer banks set sights on MENA profits; Istanbul Capital of Culture; Chelsea Art Fair Reader Offer; Sharjah Biennial; Sony World Photography Award; GCC overspending; UK imams; Rolls-Royce

Cassandra Nelson, Mercy Corps

Cover: Lebanese children, cover design developed by Prizmatone from photo by Cassandra Nelson, Mercy Corps

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ECHO and Mercy Corps in Lebanon

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Somaliland in the spotlight

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Saxobank and MENA

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Al Jazeera and YouTube: an unlikely

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Hedge funds, Europe and the GCC

partnership?

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ART

BOOKS & CALENDAR

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TRAVEL: Egypt off the beaten track

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News & Diary ECONOMY & POLITICS

GCC faces new warning over spending

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oody’s, the ratings service, has warned the Gulf states their spending hikes could have future impact on their financial rates. The inflation-fuelled ramp-up in expenditure by governments across the six-member Gulf Cooperation Council (GCC) risks triggering an inflationary spiral that would be difficult to control in the absence of other policy options and would further raise fiscal pressures, Moody’s Investors Service said. Although the consequences for governments’ creditworthiness — and thus ratings — are limited in the short to medium-term, there could be longerterm adverse implications. According to Moody’s, available data show a clear trend of accelerating government expenditure: the GCC’s unweighted average nominal growth in government spending rose from 4% in 2002 to 22% in 2006 and expenditure growth is likely to have again been very strong across the GCC as a whole in 2007. And according to data made available to The Middle East in Europe by industry analysts, European public and private sectors have been one of the major foreign beneficiaries of the splurge.

Moody’s said, “There is a clear need to raise productivity levels across the GCC to support growth over the longer term and through the oil price cycle… However, an increasingly important and potentially troubling driver of government expenditure hikes is inflation. Inflation rates have risen sharply across the GCC over the past two years, thus eroding purchasing power, leading to demands for increases in government salaries and subsidies and significantly raising the cost to governments of purchasing goods and services.”

UK prison Imam wins top Justice Award

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Muslim member of the UK Prison Service Chaplaincy has received Britain’s top justice award for his work to bring down re-offending among the Muslim community in Britain. Dr Mohamed El Sharkawy was awarded the Justice Shield for 2007 for a course he devised at The Mount Prison in Hertfordshire, England, which encourages offenders to accept the damage done to victims of their crimes, and to work towards reconciliation with their own families. Britain has a large Muslim population and a combination of factors, including the involvement of British Muslim youth in major terrorism incidents, has focused attention on economic deprivation and crime in the community as well as special needs of Muslim inmates in UK prisons. El Sharkawy received the Justice Shield from Home Secretary Jacqui Smith at a national Justice Awards ceremony in London (picture). He also won the category for most outstanding individual contribution to working with offenders. The Ministry of Justice lists 8,240 Muslim inmates — 11 per cent of the British prison population.

Etihad

Rolls-Royce sets new engine maintenance record

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olls-Royce, the leading provider of engines for business jets, says it set a new record last year for CorporateCare, its engine maintenance programme, which is promoted by Rolls-Royce as the most comprehensive programme of its kind in corporate aviation. The Middle East collectively is one of the most important markets for Rolls-Royce. Douglas Cribbes, a Rolls-Royce senior vice-president said the programme offered “true value” to operators of Rolls-Royce powered corporate aircraft because of the range of built-in technical expertise and services made available to them.

Rolls-Royce says it is spending £820 million on research and development, much of which is aimed at reducing the environmental impact of noise and emissions. The group’s global customer base spans 600 airlines, 4,000 corporate and utility aircraft operators, 160 armed forces, and more than 2,000 marine and energy customers.

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TaTanka Productions

Tom and Sabrina Karges in a poppy field, Afghanistan

Tom and Sabrina Karges, TaTanka Productions, are international documentary producers with offices in Castle Rock, Colorado, USA. This global production company has produced documentaries in more than 40 countries from Baghdad to Bogotá, from Tokyo to Cairo from London and Paris to Kabul.

Tom and Sabrina have been producing documentaries for more than 25 years and their work has been shown in the United States and internationally. Their documentaries have won numerous awards on the international festival circuit.

Their documentary Iraqi Athletics: A Test of Endurance, recently won the top award, the Platinum Remi, for investigative documentaries, at the Houston (Texas) World Fest International Film Festival. Two of their documentaries were selected for showings at the New York International Film Festival.

Tom describes their investigative documentaries as primarily social justice and political in nature but with a human touch. Their expertise is the Middle East, having produced 17 half-hour high definition documentaries in Iraq, Afghanistan and Jordan and several more in Europe and Mexico in the past four years. Their latest work has been broadcast on HDNet World Report in the US, Canada, Mexico and on NHK in Japan. They also recently produced several short documentaries for Al Jazeera International.

Tom and Sabrina are presently focusing on a documentary they are producing in Afghanistan, The War Within: Afghanistan at a Crossroads.” This program is about the survival of Afghanistan as a democratic society based on a functioning legitimate government and economy. The documentary tells the story of Afghanistan’s addiction to opium and heroin. It is the story of President Karzai and a weak and corrupt government. It is also a story of a government that is indebted to warlords and drug lords and their world of opium and heroin production and trafficking. In the big picture this is a social issue driven documentary but it will be told in a character driven format. To tell this story of conflict the Karges will chronicle the lives of three Afghan men and their families. These men in many ways represent the ones who will be most affected by the political and social outcome of the poppy conflict. Yet their stories are the same collective stories being told by many Afghans.

The first individual is Mohammed Qayoom, a poppy farmer in Nananghar Province. The second man is Hazrat Ali, the most powerful warlord/drug lord in Nananghar Province and a member of the Afghan Parliament. The third individual is Ahmad Shaw Malakzai, the former chief drug agent for Nananghar Province but he has been demoted to the head of a small police station in a remote district in the Province. This project is being funded by grants and donations from around the world and we are presently seeking a co-production with a European or Middle Eastern broadcaster. If you are interested or would like to contribute, please email us at:

tatankaproductions@hotmail.com You can also go to our website for more information:

www.tatankaproductions.net

5th CHINA INTERNATIONAL GALLERY EXPOSITION April 25 – 28, 2008 Preview April 24 China World Trade Center Exhibition Hall Beijing 8610 6409 6667 www.cige-bj.com

EUROPEAN BANKS & MENA

Business & Finance

Danish delight Albert Maasland, who took over as European COO at Denmark-based Saxo Bank on 1 December 2007, outlines for The Middle East in Europe the bank’s phenomenal forays into Europe’s immediate neighbourhood, the Middle East and North Africa region and beyond, with exemplary growth results in online wealth management

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s British and other western and southern European financial institutions score victories in MENA’s current petrodollar-fuelled splurge, it is often forgotten that these European players do not quite complete the picture of the fast and furious interaction between the finance sectors of Europe and the Middle East. Opportunities in the MENA region, and especially in the GCC’s buoyant economies, have always been diverse and in recent years plentiful. The post-9/11 flight of capital from the West to the East was initially a shock and then it metamorphosed into a historical opportunity, as billions parked virtually aimlessly in bank accounts looked for new investment vehicles. That, too, is not the whole story, of course, as European interaction with MENA predates those events of 2001 and afterwards and defies a clear and simple definition. One thing is certain, though.

While the ‘big’ players grab the headlines, other well-run institutions have made significant and profitable inroads into the MENA region. Saxo Bank is one of them, and a star performer at that.

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Kim Fournais, Co-Chief Executive Officer (with Co-CEO Lars Seier Christensen), established Saxo Bank in 1992 as a founding shareholder. Together the two have been responsible for Saxo Bank’s strategic planning and remarkable development.

An investment bank specialising in online investment in international Capital Markets, Saxo Bank is in the business of helping investors trade currencies, shares, CFDs, futures, options and other derivatives, as well as providing portfolio management. Its trading platform, SaxoTrader, has won laurels worldwide. SaxoTrader has enabled this Denmark-based bank to grow and build global partnerships that in turn have fed into Saxo Bank’s profitability. White Labelling, one of Saxo Bank’s significant areas of business, involves the bank’s online trading platform being customised and branded for other financial institutions and brokers.

In the event Saxo Bank has secured more than 100 White Label Partners and boasts thousands of clients in over 177 countries.

Saxo Bank has its headquarters in Copenhagen, with

offices in London, Geneva, Zurich, Singapore and Marbella.

It also runs a representative office in Beijing and an IT development centre in St Petersburg. Of particular interest to The Middle East in Europe was the bank’s operation in the MENA region.

Saxo Bank says it is “unique in its focus on IT.” For the majority of investment banks, technology solutions are secondary to the trading desk. For Saxo Bank a 100% focus on trading and settling through the Internet has been the norm since 1998. With more than 100,000 transactions per day, Saxo Bank achieved an operating income of DKK 1,002 million and a post-tax profit of DKK 144 million in 2006.

The bank currently employs around 1,200 people, representing 58 nationalities. When Albert Maasland, who had briefly gone into semi-retirement before his last but one active employment, was head-hunted by the bank, the time seemed right for an interview with a key player in the bank’s future plans. Below are the edited excerpts: Saxo Bank has demonstrated its commercial strength with the recent expansion of its operations in Europe and the MENA region. Can you summarise your most recent achievements in this area and also mention activities outside the region, eg in Asia, if relevant?

T

he Middle East and North Africa region covers a wide array of countries with long, rich histories and strong individual characteristics that ensure many interesting opportunities for a company like Saxo Bank. The significant population in the region and huge demand for access to trading and investment opportunities means that we are ideally placed to serve the region. As a result, we think that in itself makes a good business case. It is a fact that if you can build an amazing 22,500 square-metre Snow Park in Dubai, anything is possible; we are very optimistic about the region and so far we haven’t been disappointed.

From an organisational perspective, we run the region out of our London office with additional staff capable of serving our regional clients out of our Swiss Private Bank and Singapore offices as required.

In addition to our online marketing, we’ve had some great seminars throughout the region, most recently in Jordan, Abu Dhabi and Dubai where one of our founders participated. These seminars have generated many new clients because the Middle East has many sophisticated traders who like the combination of a multi-asset online trading platform combined with the rock-solid personal support for clients that we provide.

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lbert Maasland joined Saxo Bank as new European COO on 1 December 2007. As European COO, he is the overall head and coordinator of all European, Middle East and US offices and regions. Maasland spent 11 years at Chase Manhattan Bank where he had a number of Sales Management roles in Transaction Banking before taking over as Head of FX Sales from 1989-94, a period during which Chase became the No 2 FX bank in the industry from the 14th position.

After Chase Manhattan, Maasland spent one year at HSBC before moving to Deutsche Bank in 1995. In 2000, he announced semi-retirement, and took a number of directorships, including those at Cognotec and IIR Plc, before returning to full-time banking in 2005 at Standard Charterted.

...if you can build an amazing 22,500 square-metre Snow Park in Dubai, anything is possible; we are very optimistic about the region and so far we haven’t been disappointed What were the most notable challenges you faced during this period?

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ell, physically expanding our global network in the past 18 months has ensured some interesting challenges. Opening new offices in Singapore, London, Marbella in Spain and a representative office in Beijing as well as acquiring and integrating our Swiss Private Bank with offices in Geneva and Zurich has of course been a challenge. I only joined Saxo Bank as Head of Europe, Middle East and US Regions in December 2007. I must say the team have handled these challenges extremely professionally.

In what specific ways has Saxo Bank been innovative and have there been any notable attempts in the past five years to emulate your example or, more accurately, have any copycat operations posed any serious competition?

There might be copy cats out there but instead of copying us they should partner with us. That’s what Citibank did recently. Citi of course ranks amongst the world’s élite banking institutions and together with Citi we are launching the CitiFX Pro platform based on our ground-breaking technology.

Clients can of course open accounts with Saxo Bank directly, however in addition today, Saxo Bank is the world’s leading provider of White Label Services with over 100 financial services partners globally. We realised early the opportunity of providing other financial institutions with infrastructure and a trading platform with their own branding.

White Labelling is now a major part of our business. We see this business growing rapidly as more and more financial institutions recognise their roles as local distributors focused on servicing their local client base with the best products that might be provided by leading facilitators like Saxo Bank.

Wise financial institutions are asking themselves: why try and built our own trading platform when we can get an award-winning platform like SaxoTrader and benefit from 15 years of expertise and development in this business. That is what Citibank did.

Is being Danish an advantage or a weakness?

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either. Saxo Bank is truly a global player with 58 different nationalities and clients in 177 different countries. The reason for the success of Saxo Bank has nothing to do with nationality.

In a market in which very few players offer the sheer depth and standard of technology that we have engineered in our award-winning platform, Saxo Bank has opted to

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EUROPEAN BANKS & MENA

Business & Finance

From left: Saxo Bank Co-CEOs Lars Seier Christensen and Kim Fournais with the Chairman of Saxo Bank (Switzerland) SA, Senior Executive Director Charles-Henri Sabet and Soren Mose, the new CEO of Saxo Bank (Switzerland) SA. The picture was taken at a press conference following Saxo Bank’s acquisition of Synthesis Bank

take the lead in showing serious traders how to go global.

We empower traders by introducing the online experience as a means of instant access to the investment world. We put a multitude of investment products — more than 160 Forex crosses, 9,000 Stocks from 19 worldwide exchanges, more than 400 online and offline traded Futures contracts, and some 3500 stock CFDs from 22 exchanges — at their disposal so they can gain the most out of the trading experience. We offer charting, original analysis and trading recommendations, as well as streaming news from a host of global business news providers and up-to-the-minute commentary and expertise on what’s moving the markets.

We also offer investment techniques — leveraging stock movements via CFD derivatives — that allow traders to use their liquidity more efficiently. This is what tomorrow’s sophisticated traders are demanding.

The image of the retail online investor as a reckless, discount day trader is a thing of the past. Instead it has given way to the “active trader” who uses technology for selfeducation and to control his own investment portfolio.

Did the Danish cartoons affair affect Saxo Bank operations in MENA in any manner and, if so, how?

N

o.

What is more important for Saxo Bank, to be known as an innovative investment bank or as a multi-faceted online financial operation that caters for diverse needs of investors from a myriad of countries and with varied preferences and tastes?

I

think both go hand in hand. Saxo Bank is a modern and very innovative investment bank with a multi-product online platform, SaxoTrader (see screen image). That combination is the cornerstone of our success.

SaxoTrader has been developed in-house by our huge IT department in Copenhagen and in St Petersburg and it has been recognised time and again as one of the most efficient

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and professional execution and information platforms in the market.

What are your prognoses on BRIC? Far too many factors seem to be at play and there seems to be no shortage of confused and confusing assessments of business opportunities in this area?

T

hat’s a very big question. But, overall, we believe that the structural reforms, that range from added transparency in the dealings of the Russian central bank to Chinese equity markets opening up to foreign investors in addition to the extraordinary growth in the Indian Middle Class and corresponding surge in domestic consumption have and will continue to make emerging economies attractive destinations for international capital flows.

On the other side of the world, Brazil has continued to grind forward. While the growth rates have gradually climbed over 5%, the Bovespa Index climbed 45% in 2007.

And as this Latin giant is relatively well shielded from the US slowdown — with less than 1/5 of its exports directed to US — and as discovery of new oil reserves widens the range of opportunities, the Brazilian growth will continue well into 2008 but maybe at a more moderate rate.

With fuel ethanol as a new demand driver for corn, and

China and India continuing to increase their demand for agricultural products, we are almost certain that agricultural products will go higher in 2008 even though they may be trading lower in the first half of 2008.

How do you see the Gulf markets evolving after the corrections from 2006 onwards and the recent oil-fuelled splurges – and what opportunities do you see there?

W

ell, we have some great analysts that are following oil figures closely and oil production figures show a world that is having a hard time increasing production and that is of course interesting. It will take years before we know definitively whether global oil production has peaked; there are already signs that oilfield depletion is beginning to outpace the production from new discoveries. Light crude oil supplies have already peaked.

Production at the second largest field in the world at Cantarell in Mexico, has fallen from over 2 million barrels per day in 2003 to an estimated 1 million barrels per day for 2008. Some geologists have got a hold of new data from Ghawar that say production might be declining, and if Ghawar is declining, the world oil production must also be declining. According to Simmons and Co International, a mere ten of these old fields are still responsible for 17% of world oil production and all of those fields face potential and imminent production declines.

Only increased heavy oil production and markets that haven’t put us into permanent oil production decline overall are increasing production of heavy oil and oil extracted from natural gas fields called natural gas liquids. The final frontier for oil, ultra-deepwater fields that were not technically feasible even a decade ago, is also a factor. According to the IEA’s monthly world production figures, it looked as if May 2006 might have been the all-time peak until we got a sudden pop in the data late last year that barely exceeded that month’s total.

We wouldn’t extrapolate any future trend from this one data point and we think that the potential is there for peak oil to continue to gain attention and to continue to pressure world oil prices as supply simply cannot exceed demand.

All in all, we think oil prices could nearly double again in the coming year even though we expect demand from developed countries to drop due to slowing economies.

There is talk of significant shifts away from the US dollar, but as someone with an ear close to the ground what’s your view? Is there a feasible alternative: the euro, for example?

W

e have seen a deterioration of the US economy over the past year, but growth, spending and employment still seem firm. There is also still a chance for additional rate cuts, but Forex traders should be more concerned about the rate differentials versus other currencies. Our talented Forex analysts tell me that it seems like the worst has already been priced into the US dollar.

Another factor that might prove to be very important for the dollar is liquidity flows from corporate America’s overseas operations. Like in 2000-01 when the US economy last went into recession and the equity market collapsed, the dollar might stay strong for the simple reason that businesses need to consolidate their liquidity. They can only do this by selling, for example, euro or Sterling denominated assets and buying dollar denominated ones. This mechanism might

Why Saxo?

Can Saxo Bank’s recent global exploits have their roots in the Viking origins of its name? Saxo Grammaticus, a Danish cleric and historian who lived between the 12th and 13th centuries, is credited with the first comprehensive early history of his people, Gesta Danorum. Although little is known about his life, Saxo was probably commissioned by the Archbishop Absalon of Lund, who died before the book could be finished. Saxo subsequently addressed the work to the next Archbishop, Anders, who also died in 1222 before seeing the book completed . Meanwhile, what was originally meant to be a story of contemporary Denmark grew into a major tome and occupied most of Saxo’s life. Eventually it burgeoned into a 16-volume history of Denmark, from mythological times to 1187. Written in an elegant if ornate Latin prose, the book was cited

by Erasmus.

Right: Sculpture

by Hans Lamber Petersen (18661927) showing Saxo at work.

even be more important as the credit crisis unfolds, since the result is tighter financing conditions and more demand for liquidity.

So, in conclusion, there are certainly mixed signals, but we still think the US will beat the negative consensus bias and in general make a comeback against the overvalued euro and other European currencies.

What will be the main facets of your operations in 2008?

T

he combination of our White Label Partners’ knowledge of local markets and the Bank’s IT, risk management and market-making expertise has proven to be a very good business and we will continue to build on that.

Also, we are building our online wealth management and have great expectations for that part of the business.

Recently, Saxo Bank was recognised as one of the best providers of Forex Services for high-net-worth individuals by finance magazine Euromoney – the recognition came just prior to the opening of Saxo Bank (Switzerland). The new offices in Geneva and Zurich are intended to boost Saxo Bank’s private banking and wealth management segments, so we are very exited about that.

Finally, with the overall rise in Forex volume comes recognition of the growing importance of online trading.

Today, more than half of all Forex trading occurs electronically and by 2010 we expect that 75 per cent of Forex trading will be done electronically. These online investors want advanced trading technology through a reliable and stable platform. This is of course more good news for Saxo Bank.

All in all, the outlook for the Forex industry is not only good, it is also online – and so is Saxo Bank.

Albert Maasland was interviewed by Sajid Rizvi, Publisher and Editor-in-Chief, The Middle East in Europe. | www.meenet.info

April / May 2008

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17

HEDGE FUNDS

Investment

Hedge funds, Europe and the GCC Florence Eid and Jean-Michel Saliba Florence Eid, PhD, Partner and Head of MENA at Pantera and Jean-Michel Saliba, Analyst at Pantera, set out to explain the workings of hedge funds, an asset class that is fast gaining wider recognition from investors in the Middle East and North Africa region — and at a time when many among European managers are aiming to secure a slice of the GCC’s giant liquidity cake

H

edge funds are an increasingly important asset class in a properly diversified portfolio, yet their perceived complexity discourages many investors and high-net-worth individuals from considering them. The industry has witnessed exponential growth over the past six years, but the term ‘hedge fund’ was in fact originally coined in 1949 to describe Alfred Winslow Jones’s innovative investment fund strategy. By combining short selling and leverage to limit risk and enhance returns, Jones outperformed his mutual fund peers by more than 85% over the decade ending in 1966. Today, given how diverse hedge fund strategies have become, what unifies the industry is a combination of the partnership structure used and the pursuit of outstanding risk-adjusted returns.

Global hedge fund managers are increasingly looking at the GCC both in terms of committing investments into the region’s capital markets, and in terms of inviting investments into their firms and raising assets from the region. Recent

Hedge funds and the GCC

innovations in Islamic finance, such as salam, arboon or waad contracts which replicate short-selling, options and forwards, will ensure that a portion of GCC investments will be placed into the growing Sharia-compliant hedge fund industry.

Short-selling is a way of making profit from declining asset prices. It involves borrowing a security and selling it at the current market price in the hope of buying it at a later stage, for a lower price. Options are contracts that give the right, but not the obligation, of buying or selling an asset at a set price at a specific date or within a fixed period of time.

Forwards are contracts to buy or sell an asset at a specified future date, for a price agreed today.

Universe and strategies

H

edge funds are investment vehicles trading in a larger set of assets (securities, commodities, currency, derivatives) with a wider range of techniques than traditional funds (Table 1). They are usually structured as partnerships, with

Institutional investor base in hedge funds

T

he GCC represents an attractive area of growth for hedge funds, where the institutional investor base is forecast to surge fivefold to US$140 billion by 2010 from US$28.9 billion in 2005. By 2010, the GCC will account for 14% of the institutional investment in hedge funds from 8% in 2005. This growth rate is faster than global industry growth rates; the global institutional investor base in hedge funds should ‘only’ double to US$1 trillion by 2010 (Figure 1, inset).1 According to McKinsey & Co, 75% of the top 30 global asset managers are now active in the GCC, and 66% view the GCC as a high growth area for asset management. 2 Some regional banks maintain asset management arms, with the bulk of conventional Arab alternative funds being Funds of Funds (funds structured to invest in different hedge fund managers). Many global hedge funds are setting up long-only funds to invest in Gulf equities, sukuks and convertible sukuks. A handful of hedge funds Source: The Bank of New York, Casey, Quirk and Associates are setting up Sharia-compliant funds to invest in global capital markets.

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Investment HEDGE FUNDS

Table 1: Differences between traditional funds and hedge funds Return objectives Definition of risk Risk management tools Investment process Manager involvement Use of leverage Commission Regulation Liquidity

Traditional active managers

Hedge funds

Beat benchmark Deviation from benchmark Limited Long-only Limited No Fixed Strong Daily

Absolute returns Loss Extensive Long and short Significant Yes Performance-linked Low (offshore funds) Monthly / quarterly

the general partner making a substantial personal investment in the fund. Typically, hedge funds are open to a limited number of clients and invest on behalf of institutional investors and high-net-worth individuals. There are today approximately 9,000 hedge funds managing more than US$1.2 trillion compared to fewer than 200 hedge funds in 1990 with US$30 billion in assets under management.3 Hedge funds are diverse in the way they trade, ranging from conservative or ‘market-neutral’ hedge funds to the more aggressive or volatile ones. There are three ways of characterising hedge funds: (1) directional; (2) relative-value, or (3) event-driven (Table 2). 4 ◗ Directional hedge funds aim to anticipate the direction the overall market is going in and position to profit accordingly. Global macro hedge funds are in this category, and they can hold any instrument in any market and trade them based on their conviction of how macroeconomic and political events are likely to affect the financial instruments they hold. ◗ Long/short equity managers combine their equity holdings with a basket of short equity positions which they expect to underperform the market, while short-only equity managers position themselves to gain as the stocks in their portfolio decline in value. In contrast to directional strategies, hedge funds that employ relative-value strategies attempt to find and lock in profits based on relative mispricings between related instruments regardless of market direction. They do so by taking offsetting long and short positions either in the bond market (fixed income arbitrage), the equity market (equity market neutral) or in the convertible bond market (convertible arbitrage). Convertible bonds are bonds that can be converted into a pre-determined number of shares of the issuing company. ◗ Finally, event-driven hedge fund managers aim to anticipate and position to profit from the outcome of corporate events such as mergers and acquisitions (risk arbitrage) or bankruptcies and financial restructuring (distressed securities).

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Strategies

Examples

Directional Relative-value

Global macro, long/short equity, short only Fixed income arbitrage, equity market neutral, convertible arbitrage Risk arbitrage, distressed securities

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❱ Access to ‘alpha’ lpha’ can be defined as the additional return over market indices that hedge funds generate from the ‘active management’ of their portfolio (buying and selling assets based on their performance). While the source of returns in traditional asset management comes from asset allocation and capitalizing on a bull market, hedge fund managers derive further returns through capital reallocation strategies that enhance the efficiency of the investment process.5 Over the past decade, hedge funds have generated a Sharpe ratio of 1.15, an indication that they are able to exploit market inefficiencies. In comparison, the S&P 500, a benchmark index for the US stock market that consists of the 500 largest stocks on the New York Stock Exchange, had a Sharpe ratio of just 0.46 over the same period. The Sharpe ratio measures the excess return per unit of risk and describes how well the investor is compensated for the risk taken.

‘A

❱ Ability to generate returns in falling markets Hedge funds are oriented towards absolute returns, while traditional funds aim to outperform a benchmark, hence providing little protection in market downturns. While hedge funds have outperformed benchmarks on a riskadjusted and absolute basis, they have also historically proven their ability to preserve capital in falling markets.6 Hedge funds can perform well in economic environments in which traditional stock and bond markets offer limited returns thanks to the wide and flexible variety of investment strategies they adopt, and to the use of short-selling, leverage, and derivatives. Leverage is the practice of investing with borrowed capital in order to magnify the potential return of an investment. Derivatives are financial instruments such as futures, forwards, options and swaps, whose value changes in relation to the price movements of a related or underlying security. Derivatives can be used to reduce risk or to gain exposure to an underlying security without owning it directly. ❱ Attractive risk-return profile US$100 invested in the global macro hedge fund industry in 1990 would have grown to around US$660 by 1H07, the highest of any major asset class (Figure 2). On a riskadjusted basis, hedge funds have delivered equity-like returns with bond-like volatility (Figure 3). ❱ Diversification away from traditional equity and bond portfolios With their participation in a wide range of financial products, hedge funds offer investors diversification away from long-only stock and bond investment vehicles7. The low correlation exhibited between hedge funds and other major asset classes provides risk reduction opportunities to existing stock and/or bond portfolios (Table 3).

Risk management for hedge funds

Table 2: Hedge fund strategies

Event-driven

Why invest in hedge funds?

April / May 2008

R

isk management is about recognising risk, assessing it, and mitigating it using various market and non-market resources and strategies. Appropriate preventive measures are taken over regulatory, legal, operational and organisational potential pitfalls, while financial risk is managed using traded instruments (such as derivatives) and quantitative tools to control the volatility of returns. Typical

HEDGE FUNDS

Investment Performance of major asset classes

Risk reward profile of major asset classes

Figures 2 and 3. Sources: Bloomberg, Pantera Capital Management. CISDM Global Macro index for hedge funds, JPMorgan Global Bond index for bonds, S&P Goldman Sachs Commodity index for commodities. All performance indices rebased at 100 on Jan 90, except MSCI real estate rebased at 100 on Jan 95. Annualised return and risk based on monthly data Jan 90 – May 07, except MSCI real estate Jan 95 – May 07.

Table 3: Correlation of monthly returns between asset classes (Jan90 - May07) MSCI World MSCI EM JPMorgan Global Bond Index GBI Global Macro hedge funds

MSCI World

MSCI EM

JPMorgan Global bond Index GBI

Global Macro hedge funds

1.00

0.70 1.00

0.15 -0.07 1.00

0.38 0.48 0.06 1.00

Source: Bloomberg, Pantera Capital Management

risk management techniques include position and concentration limits, absolute and trailing loss limits, liquidity analysis, leverage measurement, and scenario analysis, as well as stress and correlation testing for models under normal and extreme market conditions. Good risk management programs are tailored to achieve a balance between growth, efficiency and proper control of investment and non-market risks. While hedge funds scale total exposure to seek to achieve their target volatility level (say 10%), risk can be scaled down further to match investor appetite.

What is VaR and how does it affect performance?

V

aR (Value at Risk) is a statistical method of using historical market trends and volatilities to estimate the maximum loss on a trading position at a given confidence level over a given period of time. It is typically used by investment banks and hedge funds to measure and

actively monitor the market risk of their portfolios.

Breaching a defined limit induces risk managers to reduce their market exposure or increase the collateral pledged against the position. Some hedge funds use Monte Carlo simulation instead of a parametric VaR methodology as it accounts more effectively for skew risk in higher volatility assets, the distribution of non-linear securities, and longerterm risk horizons. (Table 4)

Are hedge funds the next bubble?

A

major shift toward alternatives came in the wake of disappointments with traditional asset classes following the global equity boom and bust of the 1990s and the subsequent low bond yields. JPMorgan concludes the move into alternatives is not creating another bubble as there is no evidence this trend matches the stylised facts of past bubbles (rapid price gains, expensive valuations, high speculative

Table 4: Some popular misconceptions about hedge funds

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Misconception

Reality

Hedge funds lack transparency Hedge funds use a significant amount of leverage

Most hedge funds now provide monthly reports with appropriate disclosures.

The average leverage among hedge funds is 2.4x according to the UK Financial Services Authority (FSA).8

Hedge funds are unregulated investment vehicles

Most offshore funds are unregulated, but the investment manager is regulated by the Securities and Exchange Commission (SEC) in the US and the FSA in the UK.

The failure of Long-Term Capital Management (LTCM) in 1998 represents a failure of the hedge fund investment model Hedge funds are a main cause of volatility and market failure

LTCM’s failure was due to a combination of human failure, inappropriate risk management techniques and exceedingly high leverage (up to 28x). 9

Hedge funds must take excessive risks to gain higher returns

Minimizing risk is an integral part of the investment plan of hedge funds. Risk is actively monitored using various qualitative and quantitative research tools that are not generally applied by traditional funds. Furthermore, risk profiles can be scaled according to investor preferences.

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April / May 2008

Hedge funds represent less than 5% of total investments worldwide. The Banque de France concludes in its 2007 Review that hedge funds enhance market stability by improving risk sharing, and are unlikely to be the source of a systemic failure.10

inflows and excessive leverage).11 Annual inflows into hedge funds have increased to record highs, but are not accelerating as a share of total global assets under management (AUM) and do not exhibit the dramatic spiking prevalent in past asset bubbles. Moreover, leveraged investments in hedge funds represent only around 5% of total AUM in the industry, and the leverage used by hedge funds today remains dramatically lower than it has been historically. Pension funds now routinely consider a 10% allocation to alternatives as appropriate, as do bank treasuries, sovereign funds and private wealth managers to similar degrees.

Hedge funds and the recent market turmoil

U

S subprime mortgage market problems starting in 2007 triggered significant volatility on global financial markets that could last for several months into 2008.

During the summer of 2007, severe price action caused by risk reduction and broad de-leveraging severely affected hedge funds that employ quantitative arbitrage methods, as this style of trading is highly leveraged and relies on mathematical models based upon past estimates of volatility and correlation that no longer exist in the current financial environment. The turbulence also hit portfolio holdings of other hedge funds that employ directional investment strategies. Although many hedge funds avoid highly leveraged and statistically based investment strategies, they have no particular edge in predicting when severe market movements will strike. Well-managed hedge funds typically have the ability to seize opportunities that fall out of dramatic market movements, once economic fundamentals reassert themselves.

while it is arguable that some hedge fund returns are largely derived from market movements rather than manager skill, various hedge fund strategies such as event-driven ones or those involving illiquid assets are difficult to generate mechanically. Furthermore, the performance of synthetic hedge funds has not succeeded in replicating the returns that some outstanding individual managers have managed to obtain. Going forward, as the hedge fund industry matures further, a continued development of synthetic hedge funds could be analogous to the creation of passive indices within traditional long-only asset classes – ie, both as alternatives to and complements of active investment management.

Notes 1

The Bank of New York, and Casey, Quirk & Associates LLC 2006: Institutional Demand for Hedge Funds 2: A Global Perspective.

2

McKinsey & Company 2007: Corporate and Investment Banking in the GCC.

3

International Financial Services, London 2007: Hedge Funds, City Business Series.

4

Nicholas, J 2000: Investing in Hedge Funds, New Jersey: Bloomberg Press.

5

BNP Paribas 2002: Structured Products on Funds of Hedge Funds.

6

Chandler, B 1998: Investing with Hedge Fund Giants: Profit Whether Markets Rise or Fall, London: Financial Times Prentice Hall.

7

HSBC Private Bank 2006: The Role of Hedge Funds for Pension Sponsors.

8

Survey of the main London banks that provide prime brokerage services to hedge funds. Cited in a 2006 speech

by D Waters, Director, Asset Management Sector Leader and Director of Retail Policy, Financial Services Authority (FSA).

9

Lowenstein, R 2002: The Rise and Fall of Long-Term Capital Management, New York: Random House.

Replicating hedge fund returns?

A

re savvy portfolio managers necessary to generate attractive hedge fund returns? A branch of the academic literature12 has suggested hedge fund returns could be replicated using statistical-based methods. Over the past few years, declining barriers to entry into the hedge fund industry have meant that the increasing number of new hedge fund entrants are crowding out opportunities for marketenhancing returns, and that a number of managers cannot justify the fees they charge compared with the “alpha” they generate. This research debate has influenced practitioners and there are now various products and services that were launched as a result of it. Synthetic hedge funds, for example, attempt to model the risk characteristics of various hedge fund strategies, charging low fees and maintaining higher liquidity than their “real” counterparts. However,

10

Banque de France 2007: Financial Stability Review – Special Issue on Hedge Funds.

11

Loeys, J, and N Panigirtzoğlou 2006: Are Alternatives the Next Bubble? JPMorgan.

12

Lo, A 2007: Where Do Alphas Come From? A New Measure of the Value of Active Investment Management. See also Lo, A and J Hasanhodzic 2007: ‘Can Hedge-Fund Returns be Replicated?: The Linear Case,’ Journal of Investment Management, as well as Kat, M and H Palaro 2005, Hedge Fund Returns: You Can Make Them Yourself!, Alternative Investment Research Centre Working Paper Series.

Call for papers and manuscripts Saffron International Finance Series

Please write with an abstract, cv and outline of your book proposal to The Commissioning Editor, Saffron Books EAPGROUP Business Media [EAP] P O Box 13666, London SW14 8WF | www.saffronbooks.com

| www.meenet.info

April / May 2008

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