Funding the Mediterranean region
FUND MANAGEMENT RECENTLY LAUNCHED THEIR GROUNDBREAKING MEDITERRANEAN
RIM FUND - INVESTING IN AND RETAILING THE FUND IN MEDITERRANEAN'S
EMERGING MARKETS OF TURKEY, EGYPT, TUNISIA, MOROCCO AND MALTA. APART
FROM BOOSTING THE REGIONAL ECONOMY AS A WHOLE AND PROVIDING A GOOD DISTRIBUTED
YIELD TO INVESTORS, THE FUND ALSO MARKS THE FIRST STEP IN VALLETTA FUND
MANAGEMENT'S INTERNATIONALISATION PROCESS. DAVID
LINDSAY LEARNS MORE FROM ROTHSCHILD ASSET MANAGEMENT MANAGING
DIRECTOR ROBIN FULLER ABOUT THE INITIATIVE
AND ROTHCHILD'S LONG HISTORY WITH VFM.
What was involved in the setting up of the Mediterranean Rim Fund and
how does it differ from the others offered by Valletta Fund Management?
This case involves a good deal of specialist investment management advisory
work. The Mediterranean Rim Fund is quite interesting for us and - with
Valletta Fund Management being the first of its type in Malta
it has considerably developed its range of funds, products and expertise
over the past five years.
The Mediterranean Rim Fund is also very interesting because it takes
us a stage further in a number of different areas. When we first started
out here in Malta, we had straightforward feeder funds going into international
funds, which was totally straightforward. That was followed up by the
Malta funds, directly invested as opposed to being invested in other
investment schemes and funds. In terms of pricing, settlements etc
it was further up the learning curve of product diversification.
Then with the Top 100 we launched our first international fund directly
invested in international equities.
What market interest has the Top 100 received?
We generated some USD6 million in a couple of weeks. With the markets
being at their lowest at the time of the launch, I think the Top 100
had a strong appeal with the household names it involved. The fund reflected
the nature of the market at the time, which was very volatile. Accordingly,
we felt we had to come up with a fund that appealed to the market at
that time. That's why we chose the Top 100 fund.
How is VFM branching off toward new horizons with the Mediterranean
In a number of respects. First of all, these other funds - apart from
being managed here - are also launched and sold here. Rather than being
invested in the major international markets, they were all invested
The Mediterranean Rim Fund is different in several respects. Obviously,
it's being offered to the local investor, but it's also being sold in
some of the markets in which it's investing. Accordingly, we have distributors
in Tunisia and Egypt who are selling it while also supporting Rothschild
Asset Management in their investment advisory capacity.
Is this VFM's first step in its internationalisation process?
In that respect, yes. What had occurred to us was that if you look at
it from the investors' point of view, they can obviously invest in global
markets or they can invest in Malta in Maltese bonds and equities. Before
this fund, if investors wanted to go into emerging markets funds, they'd
end up in Asia, Latin America or maybe in some Eastern European countries.
But they wouldn't be investing in those economies which are actually
more closely related to Malta such as North Africa and Turkey.
In terms of diversification, it would clearly make sense to diversify
into economies which are related and have some trade relationship with
you, rather than going after markets that are totally unrelated - such
as in the case of Asia, where one has all the volatility and potential
for return associated with an emerging market but is totally disassociated
with the actual emerging markets on Malta's doorstep. Investing in those
economies that are trading with Malta can also help to reduce volatility.
So there is a strong investment story for people in Malta and the surrounding
countries that wasn't available beforehand. It seemed to us that it
would provide for a good diversification for investors
Another determining factor in launching the Mediterranean Rim Fund was
the fact that, up to now, we have concentrated purely on the Maltese
market as regards retail. Effectively, part of our internationalisation
process is the fact that we now need to get intermediaries in other
jurisdictions and this is precisely the product that would take us in
This type of fund is not commonly found with other fund managers, so
for those wanting to invest in the North African region, this offers
a diversification aspect to that market.
This is undoubtedly part of VFM's internationalisation process because
we're finding intermediaries and we're investing in these intermediaries'
This is precisely what VFM's main partners, Bank of Valletta and Rothschild,
always had in mind.
The Maltese market has potential but ultimately it is limited, so if
a company such as VFM really wants to grow, it has to grow outside of
the confines of Malta.
Malta has been promoting itself as a hub for the region and this is
a tangible step toward that ideal.
What's interesting about this product is that it has an appeal in the
markets its targets. This was more than evident when we visited these
countries to choose advisors and appoint distributors. We noticed that
there was a large number of domestic funds on their markets. For example,
you go to Egypt and you find funds investing in the Egyptian capital
market, the same in Tunisia and in Turkey
but what you don't
find is a regional fund addressing opportunities in the whole region.
Accordingly, we thought that such a fund would have an appeal to the
citizens of these countries.
What is your view of the local market?
I think it's easy to be negative about the local equity market at the
moment, it's obviously been very difficult for local investors but,
nevertheless, that age-old adage that the equity markets are the best
performing over the long term still rings true.
If you look at the progress the Malta capital market has made, it has
been substantial. There's a stock exchange that has gone from practically
nothing to a reasonable capital market and is fairly diverse in terms
of the number of investors investing in the market. The local market
has seen privatisations from the state and it has also witnessed initial
public offerings come along as well, all of that will help to expand
and add more depth to the local market.
You can see the same thing happening in these other Mediterranean markets
as well but there still are a stage behind, despite the fact that some
of the stock markets involved are some of the oldest in the world. However,
they have been rather lacklustre since the Second World War.
But now things are changing and in most of these countries you can see
various programs for the sale of state assets, which does encourage
private individuals to do the same thing - to offer their family companies
while also attracting entrepreneurs to launch IPOs on the market. The
process heightens awareness, as it is a case of the government marketing
the capital market to the public. It has an effect on both the private
and public sector.
Having said that, the current difficulties in the local market somewhat
masks the considerable progress that has been made and we see that that
same process is in its infancy in these other Mediterranean markets.
The further development of the capital markets and the attraction of
more investors is making it an attractive place to invest in.
How is the Fund broken down and could you give a ballpark forecast on
The fund will be investing 60 per cent of its assets in the fixed interest
market so we can approximately gauge what level of income we are going
to receive from there. But then, we have the 40 per cent exposure to
the equity market and that depends on the growth element of the public
Another good feature of the fund is that we will be distributing the
income to investors - a first for VFM. Basically we'll be distributing
all income that the fund will generate to the underlying securities
- on the bond element and even equity dividends. This will be distributed
to investors on a regular basis.
The reason for this approach is that within the culture of the Maltese
and those other countries that we are targeting are people who like
to receive some element of income that, for example, goes along with
their salaries. It's more of a marketing aspect. Additionally, when
we were talking to brokers and intermediaries, we found that they were
all in favour of this solution.
Obviously we cannot give a targeted total return, which would be the
culmination of capital and income, but we can target the income, which
would be at some eight per cent. Now that has added features, apart
from immediately seeing a return on an investment as opposed to having
it accumulate, in that it does make it a slightly more defensive form
of investment fund as well by receiving a return even if you don't subsequently
decide to reinvest.
This tends to be what investors revert to in times of difficult trading
conditions, which is what we have at the moment. In quite a lot of these
markets the equity yield is still pretty high, which is why we can have
funds with a 40 per cent equity exposure and still have a target income
of around eight per cent.
So it's attractive to people who want to invest early and it also means
that we're not really going for the growth end of the market and growth
type stocks, which are also the most volatile element in the market.
Have you noticed a sway in investor interest toward the fund market
from the equity market of late?
Like everywhere else we experienced a downturn in the market, which
diminished investor sentiment. When markets were performing extremely
well, obviously the funds were performing extremely well, as the funds
were selling by performance.
Particularly in a small market like Malta's, in which there is a lack
of depth, the trend can become dangerous. When markets were corrected
there was a panic sentiment so effectively, it's not a question of the
wrong fundamentals of the companies but one of people selling because
their expectations were not met.
We feel that the situation has helped us in the sense that the market
has now subsided and people are awaiting a boost. The companies are
still performing relatively well and we do need some kind of a boost
for the market to start moving upwards again. We're not expecting an
upward trend along the lines that we had a year and a half ago, but
we do expect a rise.
Maltese investors really don't differ that much from investors elsewhere
in the world in that they tend to buy on historic performance, but that's
not the time to buy, the time is now when the markets are low - at the
moment there is a better value than there has been over the last couple
of years. But it is the usual practice for people to wait to see that
something had appreciated substantially before they buy it.
So, from an investment management point of view, we're very comfortable
in offering this fund. It may be that we don't raise a large amount
of money at the outset but we will certainly raise enough to have a
diverse portfolio and we're confident that now is a good time to combine
these assets with performance.
What other internationalisation processes are in the pipeline?
We are working on the administration side as well, which could be a
lucrative business for VFM. Come rain or shine, the income generated
from back office administration is always there.
At this moment in time, all administration services for third parties
is being done by VFM, apart from HSBC funds. So that I would say is
a significant pursuit.
Our next step is to begin promoting a similar service to foreign parties.
That is goes in hand with the process.
As regards retailing funds and funding intermediaries abroad, we have
started with two intermediaries for this fund and we will have an additional
intermediary later on and we'll see how it goes and expand in due course.
I think what we have to do through this fund is be there for our investors,
any company that does not is doomed. So we have to listen to what they
want. There are a number of potential ways forward but let's listen
to them and to how they react to this particular initiative and try
to meet their demands. There are number of ways that we can do that
but we must be guided by their lead.