Delivering Through Discipline: Salem Rashid Al Noaimi, MD And CEO, Waha Capital The art of investment- as explained by a seasoned player in the MENA space.

In early 2008, Waha Capital was hardly a place for beginners. The ambitions of H.E. Hussain Al Nowais, who founded the company in 1997 as Oasis International Investments to operate primarily in the aircraft leasing sector, were about to leave no space for hesitation. Slightly more than a decade after the company's inception, H.E. Al Nowais announced its bold reinvention- rebranded as Waha Capital, it was to pursue economic diversification and exploration of new sources of income. A gala dinner at the Emirates Palace Hotel in Abu Dhabi, accompanied by a laser show to unveil the company's new corporate identity and vision, was as sumptuous as the task at hand was daunting. Yet, he was sanguine about the team's ability to effectively surmount every challenge along the way.

Today, Salem Rashid Al Noaimi, Waha Capital's Chief Executive Officer and Managing Director, seems peaceful and content with what the company has achieved. Not short of relevant experience from the outset, he has built up a reputation for being an astute investor over nearly a decade at the helm of the company. "I'm very proud of what we have achieved over the last 10+ years in this business, I think we have exceeded expectations," he says. "Remember that 10 years ago, we were in the aircraft leasing business, and today, we are a diversified investment company, touching multiple sectors, multiple geographies, and multiple asset classes. We have a proven ability to deploy capital, to invest in the right space, and make returns in tough markets."

Before taking Waha Capital's reins in 2009, Al Noaimi was closely familiar to the ins and outs of the company- the US-educated Emirati joined the company in 2004 and rose through the ranks to hold a series of leadership positions, namely Deputy CEO (2006) and Acting CEO (2007) of Waha Leasing, followed by CEO of Waha Leasing and Deputy CEO of Waha Capital (2008). Yet, the company's success has been fueled by more than just Al Noaimi's shrewd instincts. "If you look at the overall performance of Waha Capital, our average ROE over the last three years has been close to 15%, which is hard to find for an investment company in these market conditions," he says. "The real reason why that happened is because we do things very cautiously, and because of that, when the market turned south, we didn't have to change too many things, because we were always very disciplined. Just because we have a lot of funds available to deploy for a specific strategy, doesn't mean that we are going to rush into deploying it. For example, we have been talking about private debt for over 12 months, and we have yet to deploy one dollar into a business. Some people look at that and ask whether that is a failure of the private debt unit of Waha Capital, and I say no, on the contrary, it means that we observe discipline. We could have easily deployed capital into different opportunities, but we chose not to, because we wanted to maintain our focus on the longterm, making sure that we have the cash allocated for a specific strategy, and because there is a little bit of pressure from the market about it, our core focus still remains on doing the right deal."

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We are only about 15 minutes into our meeting at the company's headquarters in Abu Dhabi's prestigious Etihad Towers office block, but the conversation has already brought us rather neatly to two (for me) crucial questions: how has Waha Capital weathered the storm potentially arising from the currently challenging market conditions, and when will the company widen its focus to encompass earlystage business ventures. Aside from these being potentially sensitive topics, to Al Noaimi however, hindsight seems to bring satisfaction- neither do any of my latter questions get evaded or left unanswered, nor does any minute of the hour and a half exclusively committed to Entrepreneur Middle East pass in tension.

Al Noaimi's flawless manners aside, one can glean further insights into the company from its latest financial report. Waha Capital deploys capital through its principal investments unit and, more recently established, asset management unit. The total income from the former, which includes portfolio companies AerCap Holdings, Dunia Group, Waha Land, Stanford Marine Group, MENA Infrastructure Fund, National Petroleum Services (NPS), and Channel VAS, decreased 21% in 2016. However, its strong investment record over the years has laid the foundations for the company's new asset management unit to start growing- in 2016, total income generated by one of its three pillars, the Capital Markets division, which included Waha CEMEEA Fixed Income Fund, Waha MENA Equity Fund, and Waha MENA Value Fund, increased 76%. The other two of its subdivisions -Waha Private Equity and Waha Private Debtare expected to bear fruit in the future.

Al Noaimi explains that the company's principal investments portfolio is still the core of the business ("It is the bulk of the balance sheet; it is what pays the bills at the end of the day."), but it is getting smaller only "because other areas are growing." He adds, "We have planted the seeds of our asset management platform, which is now visible to the market, but even in that space, if you compare it to the index, we have outperformed the index by far; we have outperformed our peers by far. If we look at our two funds, both of which have an absolute return strategy, year-to-date (YTD) returns are about 15%, and the S&P GCC index is around 1%, so we have outperformed dramatically. For the fixed income strategy, it's the same thing. The index is about 6%, and our returns are north of 12% YTD. When you do things right and in a structured way, there are ways of making money even in these difficult conditions."

The results serve as a testament to the investment principles he has closely guarded for years. "The core part of how we do things is one step at a time, and in the right order. It is a really simple recipe," Al Noaimi elaborates. "So, you don't get carried away with what's happening in the market, when things are too overhyped or too underhyped. We are conservative in our approach, generally because we are a publicly listed business, and we cannot just be swinging from right to left too quickly. Our eyes are always on the ball for the long-term. Our tolerance for risk is much lower than your average investor. Yet, our returns are higher than your average investor. The reason I think is that we look at risk in a very disciplined way. Discipline is key. Also, to put things into perspective, out of the AED1.8 billion allocated in our capital markets funds, approximately AED300-400 million is from external parties, and the rest is our own balance sheet," Al Noaimi adds.

"So, we are still the biggest investor in our products. This, I think, is a key differentiator for Waha Capital, because most asset managers out there are seeding their investment strategies with a very small amount and they are fundraising a lot of money. A lot of them have done very well, I don't want to talk badly about them, but I like the fact that our team is managing our money before they are managing somebody else's money. Somebody with a brand name that Waha has established over the last decade can easily create a new strategy and invite others to invest with us, but that is not how we do things. We put our own money first, we tinker with it, we fine tune it, we increase the things that are working well, and we take away the things that are not working well, and that is when we reach a point when we want to raise third-party funds. Why we want to raise third-party funds is also important, and for two reasons. Firstly, if we look at our five-year strategy, as a publicly listed business, we are increasing our diversification by adding fee income, which we will generate from our asset management platform. So, there is a diversification within the resources of income for Waha Capital. Secondly, within each strategy we also want to have more volume so that our team has more capital to deploy. It is not only about generating fees this year, next year, or the year after, but I want to do that over a five or ten-year period."

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In 2014, the company recorded its strongest results to date- a net profit of AED1,733 million, representing a staggering 466% increase on the previous year, and a 51% return on equity. In the ensuing years, however, Al Noaimi's investment philosophy was put to test. In 2015, Waha Capital reported a preliminary net profit of AED588 million, recording a 18% increase year-on-year, however, its 2016 full year net profit was 30.7% lower than in 2015. Not denying the impacts of the economic slowdown over the past three years, Al Noaimi points out to a silver lining. "I think the fact that it has been challenging has revealed spaces that are much more interesting and exciting in the long run," he says.

"You could argue that you don't want an overheated market, you'd rather have a more balanced market. This is an opportunity for players like us to continue to grow. For example, we entered NPS Holdings Limited when it was a challenging time to enter the oil and gas space, but the performance of NPS has proven that we did the right thing at the right time. The business has continued to grow. Margins have been compressed slightly, but the business has been growing consistently year-on-year, which is what we look for in that type of investment. Again, we are long-term players, we are not trying to time the market, make short-term gains, a quick buck, and then exit. We are looking for platforms that can show sustainable growth and profitability, and when you have that approach to life, you are less scared by what is happening."

A quick research reveals that Al Noaimi has always been able to see and seize opportunities when other investors wanted to get out. When the 2008 economic slowdown caused many aviation companies to defer business until the market conditions stabilize, Al Noaimi, as the CEO of Waha Leasing at the time, purchased two aircrafts to forge a long-term partnership with Aeroflot, the company's first Russian client. It is one more example to prove why the investment community's current inclination towards short-termism is a foreign concept to him.

"There are people who are specialized at timing the market and can do it really well, but those generally get burnt once in a while," he says. "From our point of view, we are a publicly listed business, we have over 22,000 shareholders, and thus we are very careful with what we do. So, having a long-term view and having an extremely capable risk management team who are really close to the investment team has proved to be our recipe for success."

The sharp dividing line preventing this large investment fund, known for a historically narrow focus on more mature businesses, from dabbling into the early-stage investments space is slowly becoming more permeable. Recently, Waha Capital diversified its principal investment portfolio by acquiring a significant minority stake in Channel VAS, a Dubai-based fintech company operating in over 25 emerging markets and providing microfinance lending solutions to over 500 million mobile network subscribers.

"In terms of life stage, we are broadening our tolerance for less mature businesses, and with Channel VAS, we have proven that we are now more able to have a wider range of businesses, but we are not yet ready to invest in earlier stage businesses, for now," Al Noaimi says. "In 2-3 years, I'm sure things will be different. Right now, we are not there. The way we look at it is that there are different asset classes at different stages of businesses, and within each stage, there is always an added diversification angle that we can get from increasing our position in a certain asset class, a certain sector, a certain geography. After a while, it becomes a little bit saturated. Then, if you want to diversify further, and if you want to change your risk profile, it becomes necessary to make yourself less exposed. And instead of putting the same dollar in the same asset class or the same life stage, it makes sense to move to another bucket. At that stage, we would start looking at that [investing in early stage businesses]."

In December 2015, Waha Capital launched a new division focused on private equity-style investments with a mandate to deploy capital into high return investment opportunities across the Middle East and North Africa. When asked for the company's main criteria for this type of investments, he replies, "When we start a new strategy, we generally prefer for the asset to be up and running and able to generate income immediately. But, the company must be a well-run business. It is easy to say that, and a lot of people talk about that, but there are so many promising companies out there that are doing well, but they are doing well because the markets are lifting them. Yet, we look for businesses that are doing well and will do well [even] if the markets are not lifting them because they have a really capable management team who will be able to transform the business. [When analyzing a business], we take a typical approach that anyone would follow, but for me, emphasis on risk is important. When you look at entrepreneurial businesses out there which seem to have done very well, in reality, their approach is that they are too ready to cut some corners. That's key. We look for businesses that have proven that they don't cut corners and do things in a methodical, organized and structured way. You are not going to find a perfect business out there, but you want to have a team that is willing to transform the business. If it is an earlier stage business, the manager is the owner, so it makes it even more important that you have the right partner with you. Also, chemistry, making sure that they recognize the value that you bring and that you recognize the value that they bring. History has taught us that in good times you can find a lot of good partners, but when things turn, you might end up having less straightforward partners than you would want. That is why we are very careful with what we do."

An in-depth analysis preceded the Waha Private Equity's investment in Anglo Arabian Healthcare (AAH), a UAE-based integrated healthcare management provider, which reported a total revenue increase by 18% in 2016. Poised for strong future growth, it now owns 30 healthcare assets in the UAE, employing 900 people, and serving over 540,000 outpatients. Another area of the Waha Private Equity's interest is the education sector; however, no investment has been made to date. "We've been talking about investing in the education sector since 2012/2013," Al Noaimi explains.

"Yet, we have not done much in that space although we have done a lot of analysis, looked at many different opportunities, but there was nothing that ticked all our requirements. We found a beautiful asset, which had a good mix of existing and brownfield projects, yet the valuation was way off. Strategically, we want to do something in education, but we are not going to do it unless we find something that checks all our boxes. Our boxes are quite strict, and we don't change them just because more people are doing stuff in education. From 2013 to 2015, there was so much buzz around education which, I believe, overheated the market very quickly, and therefore we couldn't find the right entry point. That shows our discipline."

The much talked about Waha Private Debt unit was launched in 2016 to provide bespoke financing and direct lending solutions to mid-market companies in the Middle East, Africa and Turkey. For Al Noaimi, it is due to the company's evolution from investing in the public equity space, private equity space, public debt space, and now private debt space. "Essentially, we said that there were companies out there which looked very interesting to invest in, yet they didn't fit within the public equity space as they were smaller, private companies, and from a risk tolerance point of view, we were not yet ready to invest equity into them because we wanted a little bit more security," he adds.

"We saw that as an opportunity and we are now committed to this space, but we will only deploy our own capital for the time being, and once we have a few deals under our belt, we will probably look to get third-party investors alongside us. I would say that over the past 12 to 18 months we have developed our approach to this space. That research happens in the background and people don't value it enough, unfortunately. When somebody comments why we still haven't deployed capital into the private debt space, I think it's a short-sighted approach. We have looked at many deals within the private debt space and in the end, the risk profile might have been too much, the return profile just wasn't enough, or something turned us off in some way. There are several deals that we are looking at right now, and we will continue to do that. However, in 12 months' time, even if we still haven't done any transactions, yet we've evolved, I'll be happy with that."

To gaze out onto the stunning Abu Dhabi Corniche and the Arabian Sea from Al Noami's office at 42nd floor of Etihad Towers is to be conscious of a thin line between the things once only imagined and now accomplished. On the day of our interview, this is felt even more as a fleet of gold fighter jets whizzed in front of the window (as part of the citywide celebrations of another Abu Dhabi-based corporate giant), just as the time allotted for our interview has started to run out. Rarely could I recount a similar experience during an interview, but it serves as a symbol of a potential for achievement of Waha Capital. "I'm also very excited about the next five to 10 years," Al Noami adds.

"I think that during that period we will really prove the capabilities that we have here. What I would like is more asset classes, more successful strategies, more geographies, and in five years' time, I would say that third-party asset under management would need to be substantial. So, the success over the five-year period would be a continued diversification of asset classes into other sectors and geographies, maybe a proper VC platform, maybe even an accelerator or a seed investor unit." If whatever he has achieved so far is any indication, Al Noaimi shouldn't have an issue delivering on this premise- and the UAE's entrepreneurial ecosystem will only be the better for it.

Ecosystem outlook
Waha Capital CEO Salem Rashid Al Noaimi's take on the UAE's startup scene

"The startup scene is very exciting in the UAE right now, and I think it's going to get even more exciting, because the regulators are looking at it: "How do we help these guys and how do we help small companies grow?' I think that the government has noticed that the regulations were historically put in place for bigger companies, but if you want to encourage startups, it becomes too burdensome, and the government is looking at adjusting that. You can also see that the approach of different entities is focused on how to enable these businesses to grow and nurture them, rather than put too much burden on them."

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