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Read our exclusive interview
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 Concord International Investments Group, L.P.
Manager:
MR. MOHAMED YOUNES, Chairman
Contact:
New-York
667 Madison Avenue
New York, NY 10021
USA
Tel: (212) 759-2375
Fax: (212) 759-1503
Cairo
9 Hod El Laban Street
Garden City,
Cairo, 11451, Egypt
Tel: (202) 594-3652
Fax: (202) 594-3658
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Strategy
 Company profile:
The New York based Concord International Investments Group, L.P. is one of the leading managers of Egyptian securities in the world. Founded in 1988 by a team of highly experienced investment professionals to manage the wealth of private individuals, families and foundations, the Group acquired in 1993 a controlling interest in Train, Smith Counsel LLC, a leading investment management firm based in New York dealing exclusively with U.S. individual investors. Today, the Concord Group manages approximately
$2.6 billion on a worldwide basis. Of this amount, US $900 million is invested in Egyptian securities.
Concord is the first international firm to obtain a license to establish a branch in Egypt to manage mutual funds. It now has a 25 person team in Cairo dedicated exclusively to the Egyptian market. Its investment professionals, supported by a 10 person research department in Cairo, currently manage six mutual funds. In New York the firm also manages a number of large institutional portfolios invested in Egyptian securities.
The Group was also the first firm to establish a closed-end fund listed on the London Stock Exchange and a open-end fund also listed on the London Stock Exchange and dedicated exclusively to Egyptian securities.
In July of 1998 these two funds: The Egypt Investment Company Limited and The Egyptian Growth Investment Company were ranked No. 1 and No. 2 for the preceding year by Micropal among all Egypt country funds they track.
In December 1997 the Group was selected to manage the largest domestic single closed-end fund which is owned by the National Social Security Pension Fund, the four largest Government owned Banks and the largest Government owned insurance company. This fund has an authorized capital of L.E. 1 billion, half of which has been issued to date.
In September 1998, the National Social Security Pension Fund announced that it had entrusted Concord with the management of an additional L.E. 300 million portfolio to be invested in Egypt securities.
The firm does not engage in stock brokerage, proprietary trading, underwriting or distribution of shares.
The Group’s expertise in portfolio management and investment strategy, as well as its expertise in corporate finance and strategic planning, is made available to its clients through the following affiliates:
• Concord International Investments (C.I.I.) - New York
• Train, Smith Counsel (TSC) - New York
• Concord International Partners (C.I.P.) - New York
• Concord International Partners Limited - (C.I.P. Ltd.) - Isle of Man
Corporate Philosophy
The firm’s success is due to a focused approach to investments and a clearly defined corporate culture.
The Concord Group’s corporate culture is built upon five fundamental premises:
• Integrity in serving our clients. Every officer and employee of Concord was selected because of their outstanding expertise in their respective areas, as well as their strong motivation to excel in meeting our clients’ needs. However, expertise and motivation are not sufficient if they are not coupled with uncompromising integrity. At Concord our clients’ interest comes first.
• Absolute dedication to meeting our clients’ objectives. Every officer and employee of the Concord Group is dedicated to serving our clients.
• The firm’s expertise is concentrated exclusively in four areas: The management of equity portfolios, management of fixed income portfolios, managing international equities in selected emerging markets and providing strategic planning and corporate finance advice to some of its clients. Clients interested in adding more exotic investment instruments such as financial futures and derivatives are referred by Concord to other leading firms whose expertise complements our own.
• Concord’s ability to draw on its specialty areas in formulating a coherent tailor-made investment approach to meet each of its client’s needs.
• Absolute dedication to achieving superior investment performance consistent with the long-term investment objectives of our clients.
Management of U.S. Equity Investments
Train, Smith Counsel, LLC, manages portfolios worth approximately U.S.
$1.5 billion for 300 client families. The firm, founded in 1976, now has 15 professionals assisted by a staff of 20.
The firm’s mission is to develop and execute an achievable financial plan for each client family that will preserve the family’s assets from erosion by taxes, inflation, regulation and overspending.
This chart depicts the erosion of family wealth over several generations, assuming two children per family. The principal cause is the absence of an achievable financial plan to combat taxes, inflation, regulation and over-spending.
Train, Smith’s investment strategy derives from the observation that many clients’ wealth comes from ownership of well-run businesses with superior management dedicated to increasing shareholder value. To find such investments, the research staff visits many companies and interviews their management, customers and competitors to ascertain the companies’ reputation for integrity and their ability to sustain the growth of profits and free cash flow.
These principles have led to superior performance. Train, Smith’s audited equity performance for the 10 years through 1997 (annualized returns) was +18.17
%, compared with + 18.02 % for S&P 500 Index (with income).
Clients are encouraged to review their financial profile, investment objectives and intergenerational planning issues. Based on an analysis of these factors, the professionals develop an investment approach for each separate portfolio, trust or retirement plan, as well as specific financial planning programs (such as creating a multi-generation trust). The firm also works with clients’ lawyers and accountants in executing these programs.
Portfolio managers draw on the research and financial planning professionals to take care of clients’ needs. Frequent communication, including face-to-face meetings at least annually, is encouraged.
Management of Fixed Income Investments
Concord International Investments (C.I.I.), the Group’s New York based affiliate is registered with, and regulated by the United States Securities and Exchange Commission. C.I.I. specializes in the management of portfolios invested in international fixed income securities predominantly denominated in U.S. Dollars.
The firm’s fixed income capability was developed to serve the needs of two types of clients, namely:
• Clients interested in a portfolio composed exclusively of fixed income securities. Typically, these clients are major financial institutions such as captive insurance companies, international banks and individuals with substantial portfolios dedicated to fixed income investments.
• Clients interested in having the Concord Group manage balanced portfolios which may include equity and fixed income securities. In these cases, once the portfolio’s asset allocation is agreed upon with the client, the fixed income portion is managed by the firm’s fixed income specialists.
The investment philosophy followed by Concord gives its clients the benefit of institutional quality fixed income expertise which is not generally available to individual investors.
Concord’s approach to fixed income investments is conservative and concentrates on investment grade short and intermediate maturity instruments.
The investment strategy is designed to meet clients’ needs and is aimed at constructing portfolios with three main objectives:
Liquidity
Low Volatility
High Quality
Over the years the firm has outperformed the benchmark set for its various fixed income accounts.
Management of Investments in Emerging Market Securities
Starting in 1994 the Concord Group became increasingly active in Egypt.
Banque Misr, Egypt’s second largest bank, retained Concord in July
1994 to study the potential for mutual funds invested in Egyptian securities.
In January 1995, Concord International Investments received the approval of the Egyptian Capital Market Authority to become the first foreign investment management firm licensed to open a branch in Egypt to manage mutual funds. The firm established its Research and Investment Department in Cairo at that time.
Currently, the Concord Group, directly and through affiliated companies, manages mutual funds exclusively invested in Egyptian securities with total assets of approximately U.S. $900 million. As a result, the Group is one of the largest mutual fund managers of Egyptian securities in the world.
Corporate Finance and Strategic Planning Advisory
Concord International Partners, the Group’s corporate finance affiliate, is actively engaged in advising corporate clients interested in strategic planning or corporate finance. Over the past two years the firm was involved in the following assignments:
• Advised Citibank, Cairo branch in connection with a public offering on the Cairo Stock Exchange of L.E. 200 million 5 year notes issued by Citibank New York.
• Advised Banque Misr in connection with a public offering on the Cairo Stock exchange of 375,000 shares representing 10% of the share capital of Misr International Bank (MIBank).
• Advised Banque Misr in connection with a public offering of 830,000 shares (18.4%) of MIBank in the international market by means of a GDR issue.
• Advised MIBank in connection with its acquisition of an 11.6% interest in Misr Exterior Bank.
• Advised one of the major multinational banks in the acquisition of a controlling interest in its Egyptian joint venture bank.
• Advised one of Egypt’s leading banks in reorganizing its securities and investment activities.
• Advised one of Egypt’s leading banks in organizing its securities custody and clearing operations.
• Advised the leading privately owned tourism and real estate development group in Egypt in connection with an initial equity public offering and a medium term Egyptian Pound denominated bond offering.
• Advised a leading government owned bank in connection with an initial public offering of shares in a joint venture bank.
• Advised a private bank in creating an investment and securities department.
INTERVIEW WITH
MR. MOHAMED YOUNES
CHAIRMAN OF CONCORD INTERNATIONAL INVESTMENTS
SATURDAY 12 TH DECEMBER 1998
1/Q: Could you give our readers a brief historical background of your company and its main activities?
The New York based Concord Group is one of the leading managers of Egyptian securities in the world. Founded in 1988 by a team of highly experimented professionals to manage the wealth of private individuals, families and foundations, the Group acquired in 1993 a controlling interest in Train, Smith Counsel LLC a leading investment management firm based in New York dealing exclusively with US individual investors. Today, the Concord Group manages approximately $2.6 billion on a worldwide basis. Of this amount US$900 million are invested in Egyptian securities.
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Concord is the first international firm to obtain a license to establish a branch in Egypt to manage mutual funds. It now has a 25 person team in Cairo dedicated exclusively to the Egyptian market. Its investment professionals, supported by a 10 person research department in Cairo, currently manage six mutual funds. In New York the firm also manages a number of large institutional portfolios invested in Egyptian securities.
The Group was also the first firm to establish a closed-end fund listed on the London Stock Exchange and an open-end fund also listed on the London Stock Exchange and dedicated exclusively to Egyptian securities.
In July of 1998 these two funds: The Egypt Investment Company Limited and The Egyptian Growth Investment Company were ranked No.1 and No.2 for the preceding year by Micropal among all Egypt country funds they track.
In December 1997 the Group was selected to manage the largest domestic single closed-end fund which is owned by the National Social Security Pension Fund, the four largest Government owned Banks and the largest Government owned insurance company. This fund has an authorized capital of L.E. 1 billion, half of which has been issued to date.
In September 1998, the National Social Security Pension Fund announced that it had entrusted Concord with the management of an additional L.E. 300 million portfolio to be invested in Egyptian securities.
The firm does not engage in stock brockerage, proprietary trading, underwriting or distribution of shares.
2/Q: Our readers are businessmen who are interested in figures. Could you give us some figures like the number of employees, market share…?
The firm employs 28 persons in Cairo and 48 in New York.
Concord has a 41% share of the egyptian domestic mutual fund industry. Its next largest competitor has 26% of the market and another 8 firms account for the balance.
Internationally, the firm has a 30% market share of the internationally placed Egypt country funds.
With over $900 million invested in Egyptian securities, we believe that we are the largest international manager in the world invested in Egyptian securities.
3/Q: How do you see the Egyptian market today?
After reaching a historical high in February 1997, the Egyptian market has declined 45% through December 31, 1998. In November 1998 the IFC index was at the same level as it was in November 1996 before the bull market of 1997. However, the price earnings multiple of the more actively traded stocks is now 8 times 1999 earnings compared to a price earnings level of 12 to 14 times earnings in November 1996. In addition, dividend yields as of the end of 1998 range between 8% and 10% with a few shares yielding 15% or more. The market has finally realized that the prices are ridiculously low. In the first two weeks of January the IFC index has increased by approximately 9.8%. There is still a very long way to go and we expect that 1999 will see significant price appreciation.
4/Q: You have been given control of approval of public sector pensions and the social security fund. Do you think that this has helped to stimulate the demand?
In December 1997 our firm was selected by the Government to manage the first closed-end fund sponsored by the National Security Pension Fund in the amount of L.E. 500 million. This represented the first foray of the National Security Pension Fund in managing a share portfolio. In September 1998 the National Security Pension Fund awarded three portfolios of L.E. 300 million each to Concord and two other leading firms. The mandate is to invest these portfolios in Egyptian securities with a long term investment objective.
We believe that these decisions reflect the Government's desire to encourage the the National Security Pension Fund, the Banks and the Insurance Companies to create closed-end funds and portfolios with long term investment objectives. The domestic Egyptian investors typically have a short term approach to investments in shares and this has increased the volatility in the market. We believe that this new trend to create closed-end funds and portfolios with a long term perspective will help reduce the volatility of the market and help educate investors in general of the benefits of taking a long term view.
The entry of serious institutional investors with a long term investment perspective has undoubtedly been perceived as a positive development by the market which in turn may have stimulated demand.
5/Q: Foreign brokers are publishing glowing reports about the government’s strong commitment to economic reform and privatization. What is your opinion?
There is absolutely no question about the Government's strong commitment to economic reform and privatization. Over the past six or seven years:
Inflation has been reduced from 26% to 4%
The budget deficit has been reduced from 27% of GDP to 1%
Foreign debt has been reduced from $57 billion down to $28 billion. Interestingly, over 60% of foreign debt is concessionary long term debt with long maturities and low interest rates with a present value of $19.5 billion. More importantly, total short term foreign debt is approximately 1.6 billion.
Total foreign exchange reserves amount to $20 billion which means that Egypt at present is a net creditor to the world. More importantly, foreign exchange reserves are 13 times larger than total foreign short term debt.
While Egypt's present balance of payment is showing a small deficit as a result of the decline in revenues from petroleum exports and from last year's decline in tourism, the deficit is still very manageable as it is well below 4% of GDP and it is expected to diminish over the next few months.
Based on the preceding, it is evident that the Government's commitment to the Economic reform program is stronger than ever.
As far as privatization is concerned, the Government's commitment is equally strong even though there has been a slow down in the privatization of Government owned companies during the second half of 1998 which was caused by a weak stock market and, more importantly, because most of the crown jewels have either been partially or fully privatized. A number of the remaining companies are not as attractive as their predecessors. However, in the first two weeks of 1999 two companies have been fully privatized and in one case a foreign investor has acquired 100% of a major Government owned cement company.
1999 should be a banner year in privatization as the Government will sell a stake in the telecommunications company, and the electric utilities will also be offered in the market.
6/Q: Still, some say that the Egyptian stock market is still in its infancy. Some international institutional investors think that the market is too small. What is your opinion? What should the Government do to attract more investors?
The market capitalization of the Cairo Stock Exchange is approximately $20 billion compared to a GDP of $75 billion. However, it is important to note that unlike other emerging markets the existing market capitalization does not include some of Egypt's largest economic entities such as telecommunications, electric, transportation and other public utilities. In most emerging markets a very significant percentage of total market capitalization is represented by public utilities.
We expect during 1999 to see the privatization of the telecommunication companies, as well as some of the larger electric utilities. As soon as this takes place the market capitalization of the Egyptian market could easily double in size to $40 billion. When this occurs we believe that institutional investors will find the size of the Egyptian market much more attractive than it is at present.
As far as the second part of your question, we believe that the Government should continue to encourage major Egyptian insitutions to invest their funds in the market. The Government, in addition to committing Social Security pension funds to the market, has also increased the ceiling put on insurance company's investments in securities to encourage them to commit their funds on a long term basis. As far as individual investors are concerned, the Cairo Stock Exchange is introducing a satellite system to disseminate financial information and stock prices more efficiently on an nationwide basis as a precursor to opening regional satellite offices for the Cairo Stock Exchange.
-In which sectors of the economy do you foresee a pick for the coming years?
We believe tha the banking, pharmaceutical and public utility sectors will be the most attractive next year.
7/Q: In your opinion, who will be the best investors in banks?
As the joint venture banks and the public sector banks are being privatized, the ideal model, in our opinion, would be that the shareholdings in these institutions be controlled by a strategic investor coupled with broad public ownership. We would be concerned to see private industrial groups take control of financial institutions as this could lead to serious problems in the future as we have seen in most emerging markets.
8/Q: A number of leading brokerage houses are starting to pay more and more attention to the Egyptian market. Competition is increasing. What are the comparative advantages of Concord International Investments compared to your main competitors?
We are pleased to note that the increasing attention paid by leading brokerage houses and financial institutions to the Egyptian market. We believe that the more players coming into the market the faster it will develop. As a matter of fact, we welcome competition at this stage of the country's development. As far as our own firm is concerned, our main comparative advantage is the fact that we are a well established independent firm with a 40% market share. We rely on our own research exclusively. We have established a strong client base and we have been fortunate to have an excellent investment track record.
In order to maintain our leading position, we will have to significantly expand our efforts on the marketing side and, more importantly, make sure that we can maintain standard of performance for our clients.
9/Q: What is your strategy to increase your market share?
Our main interest is not to increase the market share as we already have 41% of the market. We are more interested in seeing the overall market expand. At present there are less than 120,000 individuals investing in mutual funds in Egypt whereas the market potential is for at least 4 million investors who can afford to invest up to L.E.20,000 each. The challenge therefore is to increase the number of investors.
10/Q: Let us assume that I have $100,000 and I plan to invest to invest them in Egypt. Would you give me a free investment advice?
There are a number of mutual funds in Egypt managed by ourselves and some of our competitors which would provide ideal vehicles for investing $100,000 in the market at present.
10/Q: Could you give us your personal background?
I was born and raised in Egypt. After graduating from Cairo University, I obtained an MBA from Harvard Business School in 1963. After spending five years with Bankers Trust Company in New York and Paris, I joined Kidder, Peabody & Co Incorporated. In 1987 following the sale of Kidder, Peabody to General Electric I founded Concord Group in New York.
11/Q: Keeping in mind that our magazine reaches more than 4 million readers, what will your final message to them be?
My final message to your readers is that investments in Egypt will be rewarding over the next few years. I would urge them to study this market carefully as it might provide them with unusually good returns without much risk compared to other emerging markets which are very volatile.
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© World INvestment NEws, 1998.
This is the electronic edition of the special country report on Egypt published in FORBES Magazine,
May 31st issue.
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EGYPT
