Coffee with…

The Gulf is fast becoming a hub for capital in all its forms — and the big players know it. Nearly every week, a new global asset manager or hedge fund sets its sights on either Abu Dhabi or Dubai — and it’s no secret that Riyadh and Doha are becoming strong contenders. The GCC’s asset management industry grew its assets under management (AUM) to USD 2.2 tn in 2024, up 9% from the previous year, according to a recent report from Boston Consulting Group (BCG). Most of that was led by Saudi Arabia and the UAE. The UAE is now home to BlackRocks Blackstones, and State Streets of the world — but there’s also a flurry of local and regional asset managers that are looking to gain ground amid rising interest in the region by capitalizing on their local knowledge and networks.Chief among those local players: Mashreq Capital, which, although currently in a reinvention phase, has a rich history of wealth management that spans decades and has been a pioneer in the space much like Mashreq has been in the UAE’s banking industry. It started managing money from 2004, was one of the first to be incorporated in DIFC in 2006, and launched the first MENA equities (2005), fixed income (2006), and sukuk (2009) funds in the region. Being one of the oldest UAE-born asset managers means it has gone through several phases — and the current phase is one of transformation, which is coming at a time of broader transformation within the global asset management industry. Mashreq Capital CEO Philip Philippides (LinkedIn) took the helm of Mashreq Capital late last year and is a veteran in the industry. He joined Morgan Stanley’s MSCI and iShares at the inception of their success. When he first joined MSCI, it was a small team of front office staff, and revenues were in the single digit mns. By the time he left six years later, the front office had increased to nearly 200 people, and revenues had also ballooned by multiples. It was a similar story at iShares, which he joined at the infancy of the ETF wave that grew exponentially to become a multi-tn USD industry, and at Amundi, which he joined in 2014 at the very early stages of their ETF growth. He also knows a thing or two about building something from the ground up. Working as a financial advisor, he set up a wealth management firm with colleagues that grew to have over 25 advisors. He also started a consulting firm where he helped asset managers with their strategy and managed to lock in major clients, including Mashreq. We sat down with him and asked him what he thinks about tokenized funds, how local and regional asset managers can stay ahead of global competition, and what AI will change about investing in the next few years. For starters, he sees plenty in the region to be excited about — and it’s not all for the global players’ taking. The government and regulators in the UAE want to build the local asset management industry, and the regulatory environment is progressive enough to support it, Philippides says. Background: One recent regulation the Securities and Commodities Authority implemented requires foreign fund managers to establish domestic feeder funds or apply for a license here in order to market their funds to retail investors. This helps the regional asset managers that are already operating in the region with local funds and has also prompted a slew of domestic feeder funds from the likes of Franklin Templeton and Varys Capital in order to retain market access. The key for local asset managers like Mashreq Capital is to be manufacturers, he added. “We’re not going to do everything under the sun, but we can develop solutions for clients that go beyond simply white labeling,” he explained. The goal for Mashreq Capital is to now become a “new age asset manager” with a multi-asset framework — using technology to scale up while staying lean, and offering innovative products in under-represented segments, from equities to private assets. Take shariah-compliant funds, for example. This space lacks innovation, and that’s something that local asset managers can take the lead on, Philippides said. “There is an opportunity in the Sharia-compliant fund space, both on the public equity and fixed income sides and well as the private assets space,” he said.“Generally, investors only have plain vanilla products tracking the Global Islamic Index, and that’s quite limiting,” he explained, adding that a lot of the innovation happening on the conventional side of assets and equities is not yet being translated into Islamic assets. It’s also unlikely that the foreign asset managers will be the ones leading this innovation, so there’s a window for regional players here, he added. Another trend Mashreq Capital is keeping a close eye on is the shift away from active investing. Active investing has been losing out to passive for a while, with active funds seeing USD 0.1 tn in global outflows in 2024, and passive products drawing USD 1.6 tn in inflows. “This is because most active managers are not able to beat passive investing consistently, after fees” Philippides said, citing the reduced costs, efficiency, and solid returns that come from passive investing. But the downside is: The boat for passive funds has sailed for many asset managers. “You need size and scale to do passive effectively, so very few people can play in that area,” he explained. What Philippides is interested in: Passive with a sprinkle of active in the mix — or what he calls “passive plus.” “It’s basically where you say we're not going to do just passive, we're going to try and outperform passive by a little bit by beating the benchmark and the fees and adding a bit of active investing to the strategy,” he said, explaining that the added risk that would come with that is not significant enough to deter investors, but lucrative enough so that it boosts returns. The potential savior of active investing? That could be AI. The problem with active investing is that it largely depends on the team and the people leading with it, and a lack of consistency, he said. AI can help develop more of those teams and enhance the data that a human-only portfolio team can consider, he explained. Another factor it can help with is timing, which is critical for active investing — in that it can help teams take positions by flagging opportune moments, he added. Data will also become key to asset managers. They can start creating proprietary databases and that will become the differentiator, alongside the tools they use, Philippides said. And tokenization? That’s like “ETFs 2.0,” he noted. “What did ETFs do? They took a relatively clunky operational structure, which is the fund, where you wait for a price of your transaction for days, and you’re generally paying a lot, and turned this into something where you can invest during trading hours at a price that you know, and that is cheaper,” he said. That is now a USD 17 tn+ industry, and tokenization has all the makings of becoming similarly massive. “Tokenization also takes a clunky structure and makes it frictionless cost-wise, instantaneous, and 24/7,” he added. But the challenges that held ETFs back initially will also likely come into play as the tokenization wave takes hold. “The big challenges were: Where do you list it? What’s the liquidity? Who are the market makers? And the conundrum is you need to put capex to launch these products and get the infrastructure required, but you also need to know when it will start paying off,” he added. Adoption also won’t come easy — but it’s already moving ahead in the institutional space; it’s retail that will take a bit of time, he expects. ETFs saw their biggest jump in adoption after crises, like after 9/11 when markets were closed, he added. The good news? The region is well positioned to be at the forefront of this wave. People in the region are building, and the regulation is forward-thinking and encouraging of innovation in the digital assets space, which is very promising when compared to their counterparts in Europe and the UK, he said.

The GCC has gone from having no weight in MSCI’s emerging markets (EM) index a decade ago to nearly 7% today, according to Raman Subramanian (LinkedIn), MSCI’s global head of index R&D and chair of its Index Policy Committee. The shift from retail-driven to institution-driven markets has been the cornerstone for long-term liquidity and credibility of regional stocks, Subramanian said. The UAE and Qatar were the first to join MSCI indices in 2014, followed by Saudi Arabia and Kuwait. Their inclusion fundamentally changed the way global investors view the region, putting the GCC alongside much larger economies in global benchmarks and making it impossible for fund managers to ignore, Subramanian said. SOUND SMART- Inclusion in MSCI indices is critical because they can offer bns of USD in inflows — mostly from institutional investors, portfolio managers, and financial advisors. Investors use the indices as gauges of market performance and benchmarks against which to compare other stocks or markets and to build index tracking funds, among other purposes. To be added as an emerging market stock, a company must first be listed in an MSCI-designated emerging market, meet minimum market cap thresholds, and boast strong liquidity (with an annualized traded value ratio of at least 15%); without having major restrictions on foreign ownership. ICYMI- MSCI added DFM-listed real estate players Dubai Residential REIT and Union Properties to its Emerging Markets Small Cap Index during its latest rebalancing in August, and removed Aramex. Meanwhile, ADX-listed Lulu Retail was added to the FTSE Mid Cap and FTSE Global All Cap indices in June, while ADX-listed Mair Group and ADNH Catering joined the FTSE Global Micro Cap Index.Active fund managers are piling into regional assets, signaling the GCC’s growing market maturity, said Subramanian. Roughly USD 127 bn is benchmarked to GCC equities through MSCI indices, with active strategies accounting for the bulk of it at some USD 100 bn, now far outweighing passive trackers, he said. While inflows often begin passively, he noted, managers are increasingly taking selective active positions in companies across the region.Just last month, the MSCI GCC Index had its best month in nearly two years, recording its sharpest gain in 21 months with a 4.9% rise to close at its highest level in almost three years, according to a Kamco Invest report (pdf). The rally was led by Saudi Arabia (+7.5%), followed by Kuwait (+3.5%), Oman (+3.0%) and Bahrain (+1.0%). On the flip side, Dubai (-3.7%) led regional decliners, followed by Qatar (-1.5%) and Abu Dhabi (-0.8%). YTD, Kuwait leads the pack with a 19.5% gain, trailed by Oman and Dubai (both +13.2%).What’s driving the rally? The six-member bloc combines financial-heavy equity markets, global energy influence, and reform-driven non-oil economies, unlike most EMs which are either resource-driven (like Brazil and South Africa) or export-heavy (like China, Korea, and Taiwan), Subramanian said. This mix, he explained, is why “investors no longer see the GCC simply through the lens of oil.” By offering diversification within EMs, the region is attracting investors looking for both growth and stability.The USD pegs and the higher dividend yields paid by giants like Aramco, compared with many developed peers, also “create a compelling investment case within EM,” he argued. He added that a more diverse IPO pipeline is giving global funds reasons to invest beyond state-linked enterprises, especially as new private sector names in retail, pharma, and real estate are coming to market. Investors also increasingly see the GCC as a single asset class, increasing their bargaining power and appeal. From a global perspective, investors are less concerned with choosing between Riyadh and Abu Dhabi, and more focused on the region as a unified allocation. Saudi Arabia dominates the region’s profile with roughly 3.3% of the EM index and more than 200 listed companies, compared with around 150 in the UAE. “Saudi is also a much deeper market,” Subramanian said, but he noted that both markets are building strong IPO pipelines.Transparency, ESG are key to bigger inflows: MSCI has been working with exchanges and businesses in the region to raise ESG standards and align them with international benchmarks, he said. He added that investors want better reporting, disclosure, and governance — and that ESG scores are becoming gateways to capital. Without stronger ESG practices, he cautioned, the GCC risks missing out on some of the fastest-growing pools of global capital.The road to developed markets status takes more than scale: Saudi Arabia and the UAE are large economies, but Subramanian emphasized that size alone isn’t decisive. “It’s not about GDP, but about market microstructure,” he said. Clearing, settlement, and foreign ownership reforms remain essential, he said, adding that achieving developed market status could unlock bns in passive inflows, but only if reforms continue to advance.

Understanding what’s driving regional capital markets — and what signals we should watch in the back half of the year: Saudi’s IPO market made a strong showing in terms of volume and value in the first half of the year, the EGX is outperforming its regional peers year-to-date, and the UAE is holding steady despite regional volatility and weaker oil prices. Altogether, it’s been a strong year so far for regional capital markets.We sat down with EFG Hermes' head of investment banking, Mostafa Gad, to break down what’s behind the momentum, what foreign investors are looking for, and how to know we’re on the right track for greater depth in capital markets. Gad also walked us through some of the stepping stones that helped the region’s most active markets drive success.Edited excerpts from our conversation:Gad sees equity capital markets (ECM) activity in the region as part of a multi-year trend rather than just a 1H 2025 phenomenon. The current cycle, he says, has been running strong for the past three to four years, fueled by structural reforms across the region.IN CONTEXT- Saudi Arabia’s main index is down over 9% YTD, while Dubai’s benchmark rose 20%, and ADX is up more than 9%. EGX is up nearly 14% YTD.The fundamentals in the region are far stronger than many expect, according to Gad. Perceived risk is the biggest misconception foreign investors have about the region. Gad says the perception is far worse than the reality. From afar, the region might seem unstable — but their confidence in the region rises quickly once they actually visit and engage with the market directly. Despite a rocky geopolitical landscape, Gad is cautiously optimistic about the second half of the year. Even with global headwinds such as the Trump administration’s trade policies, Gad isn’t too concerned about the impact of these developments on regional markets. In fact, he expects geopolitical tensions to ease, rather than intensify, in the near term. Markets have shown resilience, and if that holds, 2H could shape up nicely. Looking ahead, the pipeline for IPOs in the second half is expected to surpass that of the first half. EFG has a packed calendar for the remainder of the year. The firm is preparing several issuances in Saudi, the UAE, and Kuwait. On the equity side, they’ve already closed four transactions and aim to complete another three to five before year-end. M&A and DCM pipelines are also very active.THE LOCAL STORY-What’s holding back the IPO pipeline in the UAE compared to regional peers? Saudi Arabia simply has a larger and more developed private sector than the UAE, according to Gad. Even without the big government listings, there are more companies ready to go public in Saudi. The UAE’s private sector, while dynamic, is smaller, hence fewer IPO candidates.Authorities here understood that to build a vibrant and liquid equity market, they needed to list successful state-owned enterprises. Landmark IPOs such as DEWA and Salik helped attract investor attention, injected liquidity, and laid the groundwork for increased private-sector participation down the line.Diversification is a key driver of resilience on DFM: The exchange has shown resilience in its YTD performance largely because the market has somewhat decoupled from oil prices, thanks to its diversified economic drivers, Gad said. People have historically seen a strong correlation between real estate and oil prices. But that relationship seems to have been tested again this year, and it’s not holding up the way it used to. The economy remains vibrant, with strong performance across key sectors including real estate, services, logistics, tourism, and real estate. All of these verticals are thriving, which may explain the divergent performance between the DFM and other regional markets.ELSEWHERE IN THE REGION-Saudi’s ECM now offers remarkable diversity, Gad said, explaining that investors can tap into a wide range of sectors, from energy and infrastructure to healthcare and consumer goods. Each company brings a different story, management style, and growth potential, making the market both deep and dynamic.Now the results speak for themselves: The Saudi market has been averaging around 20 listings per year — figures that were virtually unheard of in the past, he said, explaining that many of these offerings have been substantial in size, reflecting growing investor confidence and interest. Tadawul has had some muted debuts, mostly due to stretched valuations, Gad said, adding that a correction may actually be a healthy development. This correction is viewed positively as a breather that allows for a reset toward more normalized valuation multiples. It also helps in creating more sustainable market capitalizations for listed companies. And over in Egypt, the EGX is still lagging on listings — mostly thanks to a lack of deep domestic institutional capital. Big IPOs typically require foreign participation, and that had been on pause due to FX uncertainty and repatriation concerns. What foreign investors want from Egypt: “Growth, plain and simple.” To attract foreign interest, Egyptian companies need to show robust growth, particularly in an inflationary environment, he explained, adding that with interest rates above 20%, dividend yields alone won’t cut it. Why invest in a stock when you can get a 20% zero-risk return? Gad says foreign investors are now looking for high-growth businesses with strong fundamentals and the resilience to withstand currency shocks.Could Egypt see more listings this year? Possibly, but don’t hold your breath. It will likely take another 6-12 months before the EGX sees larger offerings again. Investor confidence is building, but it takes time to translate that into action.

One quarter into 2025, the uncertainty most people cited at the beginning of the year is far from dissipating. As US President Donald Trump continues his trade war, upheaving markets and threatening rising inflation, markets are becoming less certain about the way forward for both fiscal and monetary policy. Interest rates look to be staying higher for longer, and it’s looking increasingly likely for trade wars to erupt as the US hikes tariffs on China and other countries under Trump’s rule. Despite the expected headwinds, the Middle East region enters the year in a good place. Diversification is still the name of the game for the biggest economies in the GCC, with Saudi Arabia and the UAE both pushing ahead with major infrastructure projects and investments in the non-oil sector.We spoke with Chiradeep Deb, Mashreq’s head of international banking, to get his insights into what’s in store for the region’s booming capital and debt markets against this backdrop of potential headwinds and global change. We also asked him about Mashreq’s goals for debt arrangements and more in the year ahead, his thoughts on AI in investment banking, and more. Edited excerpts from our conversation: Enterprise: Do you see global headwinds like tariffs and escalating geopolitical tensions trickling down to affect regional markets? Chiradeep: Despite the geopolitical tensions in the neighborhood, the region has held its own. Fund raising through capital markets and syndicated loans for regional borrowers are now at an all-time high. This augurs well for the banks in the region as they go about expanding their balance sheets. Eventually, the direction of oil prices is going to define how the region performs against the backdrop of global changes. A price of USD 70/80 or higher for oil is the most desirable place to be in. On the downside, Trump’s new tariff policies [could be] inflationary in the short term and as a counter measures, rates will have to remain higher for longer. It could very well lead to the region dealing with recessionary trends in global markets towards the end of the yearIf this were to happen, then this region is in for some level of real volatility, and the countries in particular who could potentially get affected are the likes of Bahrain and Egypt. Saudi Arabia, given its pipeline of gigaprojects, will be under some pressure as the break-even price heads towards the upper-80s. The UAE, on the other hand, is very well managed. Dubai is no longer a levered story. Prudent financial management over the past decade has helped the debt to GDP ratio in the 120% during the global financial crisis to settle down to the 20-30% range. I think the region remains quite resilient, with mostly bright pockets. There are a few countries and its wall of debt maturities to worry about, but in the grand scheme of things, we are better off than where we were in previous crises. E: What are the biggest trends you expect to see in the region’s debt markets this year? CD: Where in the past couple of years, new projects have been primarily driven by sovereigns and government-related entities due to limited capex spending for the private sector amid a higher interest rate environment, I expect this trend to start to reverse, with more private sector participation expected if interest rates start coming down. 2025 is probably not the year where you’ll see this fully coming through; you’ll have to wait another 12 or 18 months for a significant interest rate reduction. What we’ve also seen is that capital markets have overtaken loan markets. Loan markets have been pretty flat in the last three or four years, despite the growth of the regional economy. This region has seen an encouraging number of high yield debt issuers accessing markets. The influx of global asset managers setting up shops in the region is another encouraging development. They are not only looking at putting money in the UAE or Saudi Arabia. When they set up shop here, they’re looking at diversifying and looking at the region as a whole. Private credit is the new buzz word in the region. Before 2025 comes to an end, [I think] we will see enhanced participation in this specific asset class. We will have some regional institutions setting up private credit funds dedicated for deployment in the larger region. E: What new geographies is Mashreq pushing into this year?We now cover more than 30 countries globally from a debt origination perspective. Some of the recent successes have been in Commonwealth Independent States and Central European countries. Over the last 12 to 18 months, we have closed more than USD 700 mn syndicated loan facilities for banks out of CIS. European banks have been going through a rough time in terms of risk appetite and return criteria, so these markets have been looking to diversify their lender pool. We at Mashreq were the first from the Middle East to be involved in capital markets issuances for some of the big Uzbek and Kazakh banks and sovereigns, and we’ve also been met with success in Armenia, Azerbaijan, and Georgia. We always try to bring banks from frontier markets into the Middle Eastern liquidity pool, be it loans or capital markets. We like to originate opportunities and bring them to other banks in the region and in our global distribution network. We are constantly in dialogue in order to share a part of the risk that we originate — this allows us to be in B or B- markets that we believe we should be present in on a long-term basis. E: Are you a boomer or a doomer on AI? How is the team using it right now, and how do you see it being used in the future? I am a big supporter of trying to work with AI in our daily work life. While it is not perfect to start with, some initiatives that we persisted with have helped us embed homegrown AI models into our distribution model. Our ability to target investors with high probability of conversion has helped us to drive up volumes. We have taken the volume to fourfold in three years….and that growth can largely be credited to AI. Risk appetite of counterparties (i.e. risk participants) are constantly being monitored by the AI models. Within seconds, the model directs you to the price point at which they would be likely to buy a new asset, the likely maturity of deals, and arms you with information you need to formally reach out to them. That saves us the time and we use that to build relationships and have meaningful conversations with investors to expand the business. E: What's the biggest opportunity for Mashreq in 2025 as a business?The opportunity for Mashreq is to deepen its relevance with our client base. While most competing institutions are extending larger balance sheets on transactions, we believe Mashreq is different due to the continuous ideation. Our clients like us for the innovative solutions we offer. Our growth will come from mandates from newer markets as we anchor one country / region after the other. The regional financial ecosystem of market participants is growing fast and banks like Mashreq by the very nature of the deals we undertake leave an imprint with the new practitioners moving to the region. Reaching out and striking agreements with financial sponsors, private credit, fixed income asset managers, and family offices are all part of that mix.

It’s been a red hot year for the debt market in the region, with companies and sovereigns alike tapping markets as GCC countries in particular eye further expansion and diversification — with several booming sectors like infrastructure, real estate, and banking seeking more capital. It’s also been a good year for issuers looking to diversify their capital — we’ve seen more sukuk, more AT1 issuances, and more sustainability-linked bonds in our neck of the woods as banks’ work to set up regulatory frameworks for these types of issuances in the region bear fruit. Who in the region is leading the charge in terms of issuances as we head into the end of the year, and how are spreads looking? In part two of our conversation with Hassan Orooj, Mashreq’s head of the debt capital markets syndicate, we discuss the outlook for debt issuances in the region in the final months of the year and heading into next year, which forms of debt are the most attractive to issuers in the region right now, and a lot more. Head over to part one of our conversation for his bigger picture insights into how global markets have performed so far this year, and how US politics can impact issuances here in the region. Edited excerpts from our conversation:E: Corporate and sovereign issuers in the region have been very active so far this year — do you expect this to continue in the final quarter and going into next year? HO: Again, the US here is relevant. It's all related to how Treasury rates affect issuances, but I do expect a lot of the sovereign issuances that we've seen this year to continue. I think Saudi Arabia is going to still continue to be a key driver in the GCC, and some of the other sovereigns will be more active, especially the ones that have recently been upgraded, like Oman. And it’s not just sovereigns — we expect the same from some of those issuers from those countries where we’ve seen an improvement in ratings, and actually even possibly Egypt. A lot of the corporates in our region have generally quite robust balance sheets, and what we hear from a lot of corporates is that rates are a bit high right now. The coupons are not what they were back in 2020 and 2021. Banks are willing to lend to me at quite competitive rates, but I'm happy to sit on my hands and wait for lower rates. Is that necessarily the right thing to do? It remains to be seen, but what we have noticed is a lot of the corporates with very strong balance sheets in the region are waiting it out and expecting lower rates come next year.The risk to that approach is that rates might be lower next year, but possibly not by as much as they think. Some of those issuers that have been waiting on the sidelines — there's only so long they can and should wait because they have certain plans that they need to work on. It’s still expected to stay busy, but they just might need to pay higher than what they initially were planning for.E: What about in the UAE?HO: The UAE is going to stay active. It's easy sometimes for the UAE to be slightly overshadowed by Saudi Arabia just because of the sheer volume coming out of Saudi. But the UAE, let's not forget, has been one of the key drivers of GCC issuance, and we expect that to continue. We also expect the UAE to remain front and center when it comes to new types of issuances, so when we're talking about ESG — especially after Cop28 last year — we're seeing a lot more issuers issuing green and sustainable bonds out of the UAE. We expect that to become more prevalent. It's taken time for banks to get set up properly to issue ESG, but that's now coming into place. We're going to start seeing a lot more issuances on that front from the UAE, especially from banks and financial institutions, which are more the drivers of issuances here, whereas in Saudi, it's more so the sovereign and sovereign-linked players.E: And what about sukuk? The UAE has been a big issuer of Sukuk this year, and so has the rest of the region and emerging markets — do you expect that to continue? HO: We've seen over USD 38 bn of sukuk issuance this year, and we’ve actually topped last year — which was already busy at USD 37 bn, so sukuk is very strong this year. You have the regular, sophisticated issuers who make multiple issuances a year; some of them are sovereign like the UAE. They like to use sukuk as a way to diversify. We all know that sukuk typically is viewed as something that is cheaper than conventional, but the more frequent issuers, at the same time, they use it to diversify. They can't keep tapping the conventional market. The newer names who have never been to the market before — their go-to type of product is sukuk. The reason is if you're a debut name, there's that much more of what we call execution risk. The sukuk format — and getting access to Islamic banks and investors — reduces the execution risk significantly — especially for the more high-yield debut names. For this reason, I expect sukuk to remain very strong. E: And for Mashreq, what are the regions you’re looking at for debt issuances? I know the bank has been more active outside the region as of late. Is that approach here to stay? HO: We have stepped up issuances outside of the GCC a lot as of late. We’ve done around 50 transactions this year, and that’s a record year for debt markets here at Mashreq. Around just under half have been from outside the GCC. That approach of trying to be active outside the GCC without losing our strong presence here has paid dividends. What we are very happy to see is the markets opening up for some of the emerging market issuers, especially in Africa, for example, and we are very very hopeful that we're going to see a lot more activity in the next 12 months.Another interesting region for us is the Commonwealth of Independent States, especially Uzbekistan where we have been, for the past few years, excited about its prospects. We actually saw it materialize this year, and we were on several issuances and were actively involved in opening this new market to international investors. We expect the momentum to continue into 2025. E: Regional geopolitical tensions in the region are likely going to be a bigger theme in the next few months and next year. How much do you think tensions will impact markets this next year — if at all?HO: Being based here in the Middle East, geopolitical tensions in this wider region have been going on for many, many years now. Sometimes, it flares up in certain hotspots, then it calms down. We've seen these cycles before, and it's got to the stage now where markets are able to look through a lot of the flare-ups. Yes, this year we have seen some escalations that historically we haven't seen, but the market has persistently been positive despite all of this.You can also see this in the oil price. Typically, you'd expect oil prices to sharply rise when there's geopolitical tensions. But we haven't seen that since October of last year.

It’s been a busy year for our friends at Mashreq. The private lender rolled out Mashreq Neo — its digital banking app — in Egypt; is preparing to launch it, as well as Islamic banking services, in Pakistan, was involved in the region’s largest sustainability-linked financing transaction to date ; launched Neo Corp in Kuwait, — and grew its net income 14% y-o-y in 1H 2024 despite the introduction of the corporate tax and a challenging regional and global macro environment.Mashreq also issued USD 500 mn in additional tier 1 (AT1) bonds — its second issuance of the kind — that carried the lowest coupon rate for AT1 bonds for a UAE bank in three years. Investor appetite was heavy: The issuance was 4.4x oversubscribed. For those less familiar: AT1 bonds are unsecured capital instruments that banks issue to raise their core equity base.Leading on the capital raise and helping steer all of that growth is CFO Norman Tambach (LinkedIn), who took on the role a little over a year ago. Tambach came to Mashreq from ING Germany, where he was named CFO and executive board member in 2019, after joining in 2013, following nearly two decades with KPMG in Europe. He joined Mashreq at a time when its plans for growth and digitization were coming together more than ever — and just like every Mashreq executive we’ve sat down with, Norman is incredibly aligned with Mashreq’s vision for growth and its love for technology, AI, and staying ahead of the curve. So what went into one securing one of the best coupon rates for a Tier 1 issuance in years? It took a good story, strong fundamentals, continuity when it comes to raising capital, and identifying the right cohort investors — folks with appetite for the story and risk profile of an entrepreneurial UAE bank. We spoke to Norman about all this and more as we enter a new interest rate environment, with the US Federal Reserve having started easing and table and geopolitical tensions on the rise. Edited excerpts from our conversation: ENTERPRISE: Walk us through the AT1 issuance — how did you lock-in that coupon rate?NORMAN: The story of Mashreq over the last two years has been very positive, so we have a great story to tell. I headed to London alongside Hammad, our head of treasury and capital markets, where we had two days of investor presentations and visits. The key to those types of meetings is that you have to sell a convincing story. The investors will want to know, “Is it just good marketing? Or does it really have a strong foundation?” It’s also about building a personal rapport, so you have to try to make a connection. Management tell stories, and the investor won’t have confidence in the story if they don’t have confidence in the management team in front of them. With something like a Tier 1 issuance, the key question is, “Why do you want the money?” If it’s just to go out for a dividend or something else, that’s not good enough — they want a good story there. They want to know that you have a sound strategy, you’re committed to growth and that you are able and planning to call on the first contractual call date. And we have a story — a good one. We are experienced in the market. We have already previously issued some Tier 1 and Tier 2, and we will probably replace them and call them on their call dates, so being in the international capital and debt markets is a continuous process for Mashreq.We also had to make sure we were going to the right investors. We had a lot of interest from investors because they saw, and were able to understand and assess, a UAE or GCC bank’s risk profile, especially considering the bank’s growth story. We mapped out professional investors within the GCC and internationally who have an appetite for investing in the region and can understand the underlying risks and rewards. The UAE government’s long-term vision for the banking sector, combined with a regulator such as the Central Bank of the UAE, and the thriving regional financial services sector, also helps support a healthy environment for issuances. The regulator is very sensitive to ensuring alignment of interests between banks and investors. Both the government and the regulator understand the dynamics of the international debt and capital markets well, and the last thing they would want is to make it difficult for financial institutions to raise Tier 1 or Tier 2 debt and/or capital in the future. You have to understand the dynamic of the region to do a real risk assessment of this instrument from an investor perspective. If you can do that right, and you assess the dynamics of the regional economy, and Mashreq’s financial strength, then it’s clear that the probability that we will default on the issuance — or that we would not call after five years — is, in my opinion, very, very low. E: Why was it the right time to go to market with this issuance both for Mashreq and from a pricing perspective? NT: You want to have an optimal capital structure as a bank, which contains common capital, Tier 1 and Tier 2, and you want to have the right amounts of each. You also have to know that when you're in dire straits as a bank or if the economy is not in the best place, that is not the time to do a capital or Tier 1 issuance. You do it when things are looking rosy, and the need for capital is not even that high because your capital position is strong, but fresh capital will help finance future business growth.When investors asked why now, I explained that we were, relative to our peers, a little bit low in terms of our Tier 1 mix of total capital. With this new issuance, our capital components are again more at par with our peers in the region.We want to go regularly to the markets, and we have to continuously replace our capital — that’s a strategy. We have a capital target that is well above the regulatory requirements; we foresee sound profits going forward; and our pay-out ratio has been approximately 50% over the last couple of years, so for that growth to continue, we perform some capital planning which ensures that we have ample capital for the next couple of years.Obviously, it was also a good time for investors — we priced the issuance at a little above 7%, and that’s a very attractive coupon for the risks they take, especially now that the market expects two more rate cuts of 25 bps each before the end of this year, and another four of the same size next year, so that’s maybe 200 bps down when you factor in the half-point cut in September. In the region where we are now, we have very good economic growth rates. Here in the UAE, you’ll see a growth rate of 4% or maybe even 5% in the next couple of years, and it has a lot to do both with the country itself and where it’s situated in the world. To the East of us, we have India, and a lot of economists see us as being in the “decade of India.” To the West, we have Saudi Arabia, who are investing a lot inside the Kingdom, as opposed to just outside of the region. We're in between those two neighbors, so the odds are good that you will see very healthy growth rates in this region for the next few years, and you cannot say that for a lot of parts of the world. E: I’d like to switch gears now to your expectations for the business climate through year’s end, given the wider context of interest rate cuts. NT: Rate cuts have an impact on most banks. The impact will likely be limited this year since they’re confined to 4Q 2024, but next year and in 2026, we will see some impact on interest income. But I do think banks will still be quite profitable, but maybe not as extreme as it has been with respect to net interest income. The two things we plan to do to offset this impact is to focus on profitable growth of our customer deposit and lending business — by growing your volume, you can compensate (at least partly) the loss of interest income following net interest margin compression — and focus on further growing our non-interest income to ensure we reduce the overall impact of market rates volatility on our net profit. Two other important factors impacting the profitability of the bank are risk costs and operational costs. Currently, risk costs for regional client lending are relatively low for banks. We're still in a very benign economic environment, and at the moment we do not see clear indications that this will change soon. The second important thing is keeping operational costs under control, while allowing for investments. Mashreq is a bank with a tradition of cost-consciousness; we’ve moved around 50% of our staff into lower-wage countries, and we continue to re-balance among countries where we would like to grow our staff to keep future operational costs under control. The third thing in which we’re investing is further digitalization and making use of generative AI in all areas of the bank, including finance. We are investing a lot to make sure our internal processes are fully digitalized and scalable. Ideally, they should seamlessly work with our already largely digital client interfaces, like the Neo app. We’re also currently looking into finalizing a proof of concept this year to automate the full process of management reporting. This includes crafting a readable report and using genAI to analyze developments and formulate commentary. We already know this is technically possible, and if the proof of concept is successful, we want to scale it up across all our periodic management reporting. Our finance professionals would just do final checks, which would save us a lot of time that we can use to bring even more added value to our internal stakeholders.

While the rest of the world is seeing a lull in dealmaking, the Gulf is emerging as a bright spot, UAE-based private equity firm Gulf Capital CEO Karim El Solh (LinkedIn) tells EnterpriseAM UAE. Plenty of sectors are ripe for growth and investment, from AI to healthcare and renewables, and private equity firms here in the UAE and the wider region are capitalizing on the momentum.Whether it’s the IPO boom that has sustained itself despite global headwinds, new forms of capital — like private capital — gaining a foothold in the region, or the focus on growth capital as opposed to leverage buyouts, the region is fast becoming a hotspot for investors looking to make substantial returns. When it comes to exciting industries in the region, Gulf Capital is all in on five: Fintech, healthcare, business services, consumer, and sustainability — which it defines as water and food security, renewables, and the energy transition. As the firm prepares to reach first close on its fourth fund, which El Solh hopes will help it cross the USD 3 bn mark in assets under management, we sat down with El Solh for coffee in Dubai to discuss what the firm has in store over the coming year, which markets he’s bullish on, and why dealmaking in the Gulf is booming.KEY TAKEAWAYS: Gulf Capital plans to achieve first close on its fourth fund in 2H 2024, with an eye to raise more than USD 800 mn;Asia and the Middle East are bright spots for investors for the next few decades;The momentum in the regional stock market scene is fueling more exits in the region;The firm will be doing most of its fundraising from LPs in Asia and the Gulf. Enterprise: How has the Gulf managed to sustain its dealmaking momentum despite a global liquidity crunch and economic headwinds? Karim El Solh: It’s a story of sharp contrast. When the US and Europe are slowing down, we’re having our best year ever here. The region is growing very fast, and Europe is entering recession. Diversification of the economy and the expansion of non-oil sectors is working very nicely. Countries in the region are launching a number of new industries that are really paying off, from tourism, to healthcare, to banking, to technology. Even though there’s a lot of clouds on the horizon globally, the only bright spot today is in the Gulf region. Another one is India. Those two markets are very promising both from a growth and exit perspective. We're working on four exits this year — probably the most we’ve ever done in a year. This is at a time when exits in Europe are slowing down, and it’s very difficult to sell companies. We started the year in January with the strategic sale of Amcan, a leading sports and nutritional supplements distribution company, and we have three exits in the pipeline. That’s refreshing for global LPs. The average growth in profitability for all of our portfolio companies in 4Q 2023 was 46% on the previous year. For the full year, we grew 33% on the previous year. That kind of growth excites global investors because they’re not seeing it anywhere else.Part of it is the growth of the economy, but the other part is us working with our operating partners to grow our companies. We don’t rely on leverage. The way we make our money is by doubling and tripling profitability. On all of our exits, we increase profit by 224%. That’s how we generate our returns. When people ask if we’re impacted by the high interest rates, I say not really, because I never put leverage on companies. This is in sharp contrast to your typical US leverage buyout and European leveraged buyouts; they put a ton of leverage, and when Libor — the London interbank offered rate — was close to zero, it was very easy to make money on cheap financing. But now Libor is over 5%, and the cost of borrowing is over 11%. It becomes very onerous, and their companies are very stressed because of it.E: How do you make sure your companies are making returns? KS: We’re a control buyout fund. 80% of our acquisitions have been control buyouts, and I think looking ahead, it will be 100%. We insist on control because we bring a deep bench of operating partners. We clean, fix, and grow our companies — we’re an active owner. We cannot transform a company with a small minority stake. E: Looking ahead, what’s your preferred exit strategy? Are you looking at IPOs or strategic sales? KS: Historically, we were very focused on selling to strategic buyers because we have controlling stakes and market leaders. The sectors we focus on are growing fast. They attract a lot of global investors and strategic buyers. With Chef Middle East, we held an auction and got a bid from Thailand and Germany, but it was eventually sold to a US company — the Chef’s Warehouse, which is listed on Nasdaq. We got a 2.5x return on that investment. But now I’m seeing a lot of global investors coming here, and they're approaching us. We’re speaking to three or four of them, so that’s a new exit avenue which we didn’t have before. They’re investing out of big funds, USD 20 bn funds. They need a minimum equity check of USD 300 mn. For me, that’s great, because we write checks of USD 50-100 mn. We double, triple the size of these companies, and we can sell to them.The other thing that is new is how vibrant and exciting the regional stock markets have become. Historically, we had to go to London to do IPOs of companies like Gulf Marine Services, because the markets here were not open. Now, it's much more exciting to do IPOs here than internationally. I think the IPO route for the next two years could be an exciting one. E: Global investors coming here is an interesting opportunity for you. But is there concern over competition? KS: We are in the midmarket space, while most of the ones coming here are in the big check space, so we are not overlapping. They will never spend time like we do on a USD 40-60 mn transaction when they are a USD 20 bn fund. It doesn’t move the needle for them. They need bigger tickets. E: What do you have in line this year in terms of investments and funds?KS: We became more and more sector-focused after 2016. After 2015, there was an oil crash. Oil prices dropped by 70%. It was then — as we launched our third fund — that we shifted from being a generalist and investing a lot in oil and gas to looking into the future.We mapped out 45 sectors and we picked the five fastest growing sectors. We’re now building a pipeline from these sectors for our fourth fund. We hope to achieve the first close on our fourth fund in the second half of the year. Fund III is 90% deployed, so we have 10% left. E: Do you have a certain goal for the size of the fourth fund? KS: We’ve been growing steadily. Our first fund was USD 160 mn, the second was USD 533 mn, and the third fund was USD 750 mn. Hopefully, our fourth fund cover is USD 800 mn or more. We’ll typically invest in 12 companies per fund, and the average ticket is USD 50-100 mn. E: What does your LP mix look like right now?KS: Historically, we’re backed by a number of sovereign wealth funds, pension funds, funds of funds and family offices, around half from the Gulf and the other half from outside the region — a lot from Asia, and some from Europe. I think for this upcoming fund, the most fertile grounds for fundraising would be the Gulf and Asia. The economies are doing well; they’re liquid, they like the Gulf, and they’re keen to put money here. I see much less appetite from Europe because Europe is going through a lot of issues, from economic recession to lack of liquidity. With that context in mind, I see European investors pulling back, maybe going back to looking at their countries, while the Asian sovereigns are coming here en masse. We’re much more excited to look east rather than west when it comes not only to investments, but fundraising as well.E: And speaking of Asia, you were recently on a roadshow there. What’s exciting to you about Asia right now and which countries and sectors specifically are you looking at? KS: I think the pleasant surprise I found was Japan. It was very nice to see the strong revival Japan’s going through. Local players are very excited to invest in Japanese private equity and there’s more activity and more take-private. You feel they’re going through a generation shift, after being a sleepy destination. That was a bright spot. India is very exciting as well. China is facing some issues, but I think they’re stabilizing and you can already see a rebound in the Hong Kong stock market. I think 2024 could be the year where they turn the page and resume the growth they had before. Asia is a very exciting consumer market, with a big population that’s growing fast. Our head of Singapore has a consumer background, used to work at firms like LVMH, Zegna and Nike, and has a unique network of potential investments in that sector, so that’s an interesting play. We’re also looking at bringing our healthcare companies to Asia. We own the largest fertility platform here — ART Fertility. We’ve expanded to India, and opened 10 centers, and we will soon open 15 new centers. I think the corridor we’re investing in from the near to Far East today is the fastest growing corridor in the world. It’s an exciting region, and if you look 30 years from now, the European economy will increase 1.5x, the US 1.8x, the Gulf will triple in size, Southeast Asia will quadruple, and India will quintuple. If you want growth, you have to be in this corridor where we’re playing. It’s not in Europe, it’s on the near to far east — the new Silk Road. E: Since healthcare is one of your focal sectors, can you tell us more about the growing consolidation trend in the industry here in the UAE? KS: There’s a lot of action on hospitals now, but this is not a sector we look at because hospitals tend to be very capex-heavy and take a long time to scale. We prefer asset-light businesses, like clinics and our fertility platform. In four years, we went from one to 15 centers across the Gulf and India. You can scale and build faster and will have generated a much higher return investing in clinics and asset-light healthcare opportunities than in hospitals.E: Back to your strategy and priorities for the year: What will your investment-to-exit ratio look like? And can you give us a breakdown of the investments you plan to make per market? KS: I think this year we will see much more exits than new investments. We've been growing our companies for a long time, and we’ve reached record profitability. It's an excellent time to be harvesting our portfolio. I expect the exit-to-investments ratio to be 2:1. That’s where we are in the life cycle of our fund. Fund IV will be probably 70% Gulf, 30% Asia. But as we do more bolt-on acquisitions — acquisitions of smaller companies — most of which come from Asia, it could become 50:50.

What does the future of banking look like, and will we still need physical branches five or 20 years from now? Will there be room for relationship managers? In part two of our interview with Fernando Morillo (LinkedIn), the group head of retail banking at Mashreq, he dives into these questions and more — including where he sees open finance and AI playing a role in managing bank-client relationships, and the bank’s strategy for its different markets. A quick refresher about Fernando: He has been with Mashreq for nearly three years, and is in charge of everything from the retail experience through digital propositions Mashreq Neo and NEOBiz. A tech nerd at heart, Fernando’s thoughts on what he viewed as a “boring” industry — banking — completely changed when the internet came along. Before working at Mashreq, he had a run at McKinsey & Co, where he was focused on banking, ins., retail, and digital across Europe, the Middle East, Africa, and the United States. If you haven’t read part one of our interview, he discusses everything from how AI will impact jobs in the banking industry to the transformation of chatbots and the embeddedness of software into everything a bank does.We spoke over the course of multiple days in Cairo and Dubai. Edited excerpts of our conversation follow. KEY TAKEAWAYS from part 2: Banks have one big edge over fintechs: Scale. He’s not losing sleep over fintech startups, saying some may hit escape velocity, but others will run into the wall — and others, still, will become service providers to larger institutions.Where will you speak with a human? Go to a branch? When the regulator or the complexity of a transaction demands it. When you want to (if you're HNW). Or if you’re a corporate client with a complex transaction.Open finance has the potential to transform bank-client relationships, giving clients a more comprehensive insight into their finances and banks the knowledge they need to provide better advice and become more embedded in clients’ decisions.E: Where does the competition between established banks and non-bank financial institutions shake out? There’s an extent to which our region — the GCC in particular — is overbanked. And with the end of the era of free money, it seems there could be an opportunity for people with larger balance sheets, deeper pockets, longer-term views, maybe less shareholder pressure to make a play.FM: Yes, and all of that comes as we have these disruptive technologies starting to make a difference in the industry. I think there’s an opportunity for disruption across industries, not only banking. In banking and finance, we operate in regulated markets. That’s certainly going to have an impact on how much change or consolidation will take place. But incumbents will face a lot of disruption unless they adapt, change their behavior, and operate with the nimbleness of software houses. What clients want from you is effectively software solutions applied to personal finance and their interactions with digital ecosystems. If you are not the supplier of those solutions, it will be increasingly difficult for you to be competitive, and that will trigger consolidation.E: So will we see incumbents replaced by new market entrants? FM: Frankly, I don’t think it will be a massive disruption — there’s enough space for everyone. There are incumbents who will survive — the ones who adapt, who understand their clients, and serve them digitally. And not all of the new entrants — the fintech players and neobanks — will thrive. There’s a bit too much hype about fintech players right now, if you ask me. The reality is that only a handful of fintech players will reach a critical threshold with a sufficiently differentiated product. There is a lot of space in the middle for fintechs that can provide banks with services and solutions that banks are not naturally positioned to build. Mashreq recognizes the critical role fintechs play in reshaping the financial landscape and we’re committed to collaborating with these entities to bring cutting-edge solutions to our customers.E: So the future for fintechs is to become service providers to banks? FM: As software houses, fintechs have a ruthless focus on solving a client’s single, specific problem. Banks, on the other hand, offer specific solutions to a very broad array of problems. So it's very difficult to have the perfect solution for each of our problems in the way we service our clients, and that’s where working with fintechs can be very helpful. It's not a binary situation. We'll see some banks thriving, others having to be integrated into larger institutions. We'll see some fintechs that will go straight to clients and become direct competitors of banks. And we’ll see some fintechs that will be fantastic providers of solutions to banks and to other fintechs.And, of course, we’ll see many fintechs that will not make the cut. Think about it: At the beginning of the 20th century, there were several hundred automobile producers in the United States. How many are there today? Eight? Ten?And in the meantime, there is so much banks can learn from how nimble fintech players are. At Mashreq we have units that work across functions in an agile way. Scrum masters in a bank… .Who’d have thought that was possible a few years ago? E: How can banks know enough about the totality of your finances to make good recommendations in an AI world?FM: That’s where open finance comes in — an emerging set of standards that will allow you to get an integrated view of your financial position regardless of where you are or what you’re doing. You can see how much money you have, how much money you owe, how much money you should save in order to manage your life financially. That's how banks will become part of your life in use cases that transcend the product, and actually tell you whether it is financially sound for you to make that transaction or not. And that’s the direction of travel. Big data is already there. AI is getting there. And now, open finance is being established in many countries — it’s a data structure and series of pipes that will allow people to share their financial data from one institution to another. I’m very excited about the new use cases that it will make possible. Think about how easy it will make going shopping for a loan, for example, if you can get data on five different banks and see their tailored offers, all in a single portal. E: What is the role of the physical branch in this world? Will there be branches 5 years from now? 20? FM: Branches are the apotheosis of the universal banking approach, where all segments go and interact with their finances — a one-stop physical shop that’s still a big part of the banking system worldwide. We’re moving in the other direction at Mashreq — in the UAE, we’ve cut our branch network by 85%. It’s been a deliberate move driven by client demand. People don’t want to go to a physical place and wait in line to do something they can do online. For instance, Mashreq NEO in the UAE is a true reflection of this approach — a full-service, branchless bank proposition that provides best-in-class customer experience. Mashreq NEO was the first in the UAE to provide access to international markets for investments, including foreign equities, gold trading and foreign currency accounts. It is the largest digital proposition in the region that offers a full suite of banking products, both transactional and discretionary services and investment products.But I think we’ll still see a need for physical branches in a handful of types of situations. The first involves complexity, where it is too difficult for a client to sort out a solution by themselves. The second is regulatory — some things still need to be done in person. And the third is more high-value interactions in which what I call ‘the tail of complexity’ requires an interaction with a human. This often cannot be a video call or a phone call but a conversation that has to take place across several interactions with data and an exchange of ideas. Even as AI becomes more able to read human intent and emotion — and it’s getting there — other situations will simply be better managed face-to-face by a human, who understands the needs of the person sitting across from them at a human level. At Mashreq we are expanding our touch points (exploring newer channels) across the UAE offering more enhanced services to our customers. And branches will continue to play an important role, albeit a different one.We see the branches evolving to serve the changing needs of customers, specifically those who require deeper personal engagement and advisory services such as purchasing a home, financing a business or discussing legacy decisions.E: How often will I speak with my relationship manager in the future?FM: Part of the answer depends on whether you’re a small or large business, whether you’re a private banking client or other. More and more, you’re going to get good access to data and sound advice over your device. And you’re going to be able to click in the app to bring your RM into the conversation through chat or video in the digital space. And then if it’s more complex, perhaps you’ll want to see the RM in an office, or the RM will come to you. Think of it this way: If it’s tweaking your portfolio, you’ll probably do that 90% or more of the time in the app. Maybe you’ll tap to call in your RM if you have an additional question, but the AI will be great at portfolio construction. Where you’ll want a face-to-face interaction isn’t when you’re gently rebalancing a portfolio, but when you feel that you need to completely burn it down and start from scratch because you worry you may have gotten the allocation completely wrong. E: What about at the corporate banking end of the scale? FM: Corporate or wholesale is really outside of my purview, but I would expect you’ll see AI tools being used by bank relationship managers, risk teams, and the like to ensure they better serve their corporate clients. But robo-advisors for large corporates really don’t seem to be in the pipeline now. Mashreq made substantial progress with the introduction of new digital platforms in its investment banking sector, contributing to enhanced operational efficiency and client servicing. It’s additive.E: How does your strategy on digitization differ in, say, Egypt or Pakistan versus the UAE? FM: They’re really different propositions, even if they’re all moving in the same direction. In Egypt or Pakistan, it’s about digitizing the country’s financial system and driving financial inclusion at large — bringing more people and SMEs into the system is what’s going to move the needle for the industry and for society. It’s not the time yet to come up with advanced, super-niche products.In a developed economy like the UAE, the foundations for digital are already in place. So the next big thing is digitizing wealth management and providing clients with more advanced products and services that give them the tools they need to manage their finances in the long run. And in the case of SMEs in the UAE, it's more about digitization of loans and bringing down the cost of lending. And that will roll out to less-developed economies as they mature. E: What’s driving growth for you folks? Your full-year results were fantastic. FM: In the case of the UAE, the country has had a phenomenal few years. We’ve benefitted from great management of Covid, the recovery in oil prices, and from the simple fact that the UAE is a great place to live. That’s made it a global hub for business and sparked a property boom. And as a bank, we are growing with that — it’s not just us at Mashreq but the sector as a whole. And, of course, the interest rate environment is great for banks because it provides a tailwind. In parallel, the bank has a truly entrepreneurial culture, so we’ve really gone for growth — growing our assets, our liabilities, our services. And as we’ve done so, our risk management approach has been just right. Our culture of innovation and obsession with client experiences and digital have allowed us to outperform the market. It's this obsession with coming up with something cool and good for the market that creates the numbers. And let’s not forget our greatest asset — our people, who are instrumental in our ability to deliver a superb customer experience and develop award-winning products and services.E: And in Egypt?FM: Our operation is much smaller in retail in Egypt. For the most part, we are a corporate bank there, but we see huge potential for growth in the mass market. I think we can play a fantastic role in driving financial inclusion, which is going to be a massive catalyst of growth in the country in the long term. With 110 mn people, the opportunity is immense. We want to be the ones who gave the middle-aged entrepreneurs of tomorrow their first accounts, their first credit cards, their first loans. We want to look back in 10 years’ time and say we did our bit on that front. E: What’s the biggest surprise more than two years into your time with Mashreq?FM: The quality of the people — Mashreq has always been known as a business that can choose and develop great talent, but now that I’ve been here, it’s amazing to see how deep that runs. And maybe we’ve been a bit too successful on that front [laughs]. Because what happens is that people come here, develop as professionals, and then others in the market start poaching talent…I think the other big thing — on the personal front — has been re-learning that everything is possible and can be done in a very agile way without compromising on risks. Coming from very large institutions, this gets beaten out of you, and Mashreq is amazing: It has no fear of trying new things, and it balances that off with a very careful approach to risk management. You can see that in our non-performing loan ratio, which is less than half the industry average. Mashreq is careful about risk, but it leaves the door open to try new things and new technologies in business. Your limits in business are internal — they’re in you. It’s all about your attitude toward what’s possible, and that’s something I’ve rediscovered at Mashreq. This amazing entrepreneurial culture where you are in a meeting and someone says something that sounds ridiculous, but then you figure out how to make it real. This comes from the top, this culture of “you need to try anything that provides an amazing client experience, even if it sounds crazy — just look for ways to minimize risk as you do”.Here, we’re asked to dream and come up with things that challenge the status quo. It’s very refreshing, and it’s something I have had to relearn since coming here.

The UAE has worked overtime in recent years to diversify its foreign policy and trade relationships, but the United States remains the country’s preferred partner, says Steve Lutes. The US Chamber of Commerce’s vice president for Middle East affairs, Lutes says there’s a “real business case” for American companies to do business in the UAE.The US Chamber of Commerce is the largest business lobby in the United States and traces its history back well over a century. Here in the UAE, it aims to keep dialogue open with policymakers on key business and trade issues, to spark interest among US businesses, and provide companies in both countries with a platform to network and collaborate. The US and the UAE have long had a strong trade and investment relationship, with trade between the countries reaching USD 31.4 bn in 2023. The resulting USD 18.3 bn trade surplus for the US is its fourth largest surplus globally, according to data from the UAE embassy in Washington. The UAE is the US’ largest export market in the Middle East — more than 1.5k American businesses have set up shop in the Emirates. We sat down in Dubai for coffee with Lutes when he was recently in town on business. Edited excerpts of our conversation follow.KEY TAKEAWAYS:US climate companies “cannot not be” in the Emirates;The chamber is talking with the Emirates Drug Establishment about everything from intellectual property protection to what the “healthcare system of the future” looks like in biopharma, healthtech, and diagnostics;The space industry is potentially interesting, especially if companies here see opportunity split between the Emirates and Saudi Arabia;Data sovereignty is an issue for US companies doing business here — how to respect local data control and privacy rules while still giving companies the flexibility they need to do business;The UAE will remain attractive to US companies so long as “the rules of the road [are clear] and the playing fields [remain] level.”ENTERPRISE: How much interest is the UAE getting from US businesses?Steve Lutes: The UAE hosting COP28 supercharged US businesses’ interest in the UAE, especially in the energy transition and energy security sectors. There was already interest, but when you get out into the United States beyond the East Coast and the West Coast, if you were a small business and you had an innovative technology in climate change, you might not have thought the UAE is a natural place to go because you googled it and you saw Adnoc. But then when you dive a little deeper and then realize what their plans were for COP28 and, ultimately, what they accomplished; [you’ll find] that they're very serious about both of these spaces.I think interest is only on a sharp curve up, because It's almost like it's an innovation capital hub. It is super energized when it comes to the knowledge-based economy, and they put a lot of emphasis on innovation and early adoption. So whether you're a young startup looking to scale or you're a large multinational, it's almost like you cannot not be here.The chamber brought its largest delegation to a COP ever, and a lot of it had to do withUAE officials going out of their way to try to say “we fully appreciate that business needs to be at the table.” Governments can set targets in infinity, but you need partners, investors, innovators, and you need the private sector. [Those are the people who] ultimately can cooperate with governments to deliver. For those at the chamber covering energy and environmental policy, I think they felt that this was one of the most consequential COPs that there's been in a while. The priority now for the chamber in the region is “how do we keep that momentum going?” We want to make sure that US companies are continuing to come here and take advantage of the opportunities. The follow-on and what comes after is just as important as what’s announced and what you do during those two weeks. Policies, standards, regulations have to be developed, and we always want to be a part of that conversation.ENTERPRISE: You’ve mentioned renewable energy, what other sectors in the UAE is the chamber looking at? SL: We held a meeting with Dr. Thani bin Ahmed Al Zeyoudi, the chairman of the new Emirates Drug Establishment, which is analogous to the US’ Food and Drug Administration. We pulled together a group of companies with him and the director general, Dr. Fatima Al Kaabi, to understand what they're looking to do. The establishment impacts, of course, the innovative biopharmaceutical companies, healthtech, diagnostics, so we want to understand how they want to build a healthcare system for the future. We're looking to be a part of the conversation on how they go forward and have an eye toward the policy and regulatory regime and making sure that whether it's intellectual property or data governance, that they're thinking through how that's going to affect business and do things that are patient-oriented, but that also don't harm innovation and don't harm investment, so threading that needle and getting those things right. Our intention is also to bring a delegation focused on space. Maybe there's a smaller number of companies, but those that are in it have come to appreciate that the UAE again is matching their plans with action. We’ve seen what they've done with some of the projects already, and I think the future is really impressive. There's already a great relationship with government-to-government and NASA, and there's already US companies that are working in this area here. So what we want to do is bring more US companies. We hope to bring that delegation also to Saudi, because both countries have a space agency. if you're a US company coming all this way, it might make sense to come here and capture Saudi.We’re also talking to governments about data privacy and data governance, because it's fundamental in a global economy where governments naturally want to put a lot of barriers or walls. They want to localize and control the data. But if you're a global company or a startup and you have an office here in the UAE, and you're based back in Santa Clara or somewhere, it doesn't really matter. You need to move the information back and forth, and you need to do that efficiently. We’re having those conversations with governments and noting that there’s different classifications and levels of data, and helping them figure that out so that cross border data flows are enabled. Here in the UAE, I think they've done a really good job talking to the chamber and to business and getting that right, because then that underpins AI. The chamber is bringing companies to the table to talk to the Emirati government and other governments in the region to help figure out what that looks like. ENTERPRISE: Has the corporate tax — and the erosion of the UAE’s “tax-free” status — impacted interest from businesses looking to set up shop in the UAE? SL: The important thing when it comes to policy practice is when you have a significant change, not to roll it out and say, you have three months to adapt to this. You need to give a long runway and grace period for companies to adjust internally and anticipate that. I think there's so many factors that are working in the UAE's favor, so I don't foresee a major impact [from the corporate tax] on companies pulling back on investment. The tax was onboarded with enough awareness, time, and discussion that people can internalize that and figure out how to handle it. ENTERPRISE: Are US businesses deterred by the increasingly complex geopolitical environment on this side of the world? G42 recently had to cut ties with Chinese businesses in order to appease US partners. Are these partnerships a problem for US businesses? SL: As a business, you should want to make sure that the rules of the road and the game is fair. I think most US companies would say, if everything is on a level playing field, then our product and our ability to deliver service; we can compete. We think we can succeed, particularly in a place like here in the UAE, where the focus is on innovation and new technologies, because I think, by most measures, the US is a tech giant. Of course, competition is growing, but we still continue to excel at that. Are we going to be the lowest cost producer? No, but that's been the case for decades. So that's not our value add. That's not our strength. What our manufacturers produce often comes with the aftersale benefit; the training, the maintenance, things that others may not bring to the table. So for governments like here in UAE, I think there's a confidence that the US will continue to be a main strategic partner here and elsewhere in the region, and as long as the rules of the road and the playing fields level, I think there’s a strong confidence that we can compete and succeed. ENTERPRISE: Why do you think the UAE has been so successful in positioning itself as an innovation capital hub? SL: They’ve been smart and fortunate to have an incredibly capable population. I think they've brought enough people, the majority of whom are trained and educated in an area that fits one of the buckets they prioritize. They’re not thinking about how to get a job in the field of the last hundred years, but you know, what do the next ten-15 years look like? It’s a very forward looking approach, and it's become part of the culture here. They put a lot of effort into the STEM space, so they're churning out people that are working in genomics and life sciences. You have practitioner doctors, but you also have Emiratis that are coming out of colleges and programs that are thinking about how we can enable genomics and what that means for the future of healthcare here in the UAE. They're also matching that with the investments, so that you have leading hospitals that are coming here and setting up shop and they have innovation centers as well. They're matching the talent with investment and the know how and capability of global firms. And then also putting in place the policy environment that enables it all. Because if you have a lot of roadblocks, things that limit that, it's just going to become a challenge. There’s a really interesting FDI program that aims to attract companies that are looking to scale, and they can be young companies that have a new technology or innovation and are looking for a place to grow. The program offers incentives and helps them not only establish themselves here, but also to use this as a hub to grow their business in the region. That also sets the UAE apart, because they're not just looking for the big multinationals, they're looking at the future multinationals or companies that are growing and doing innovative things.

ADX gets new chairman..: Sovereign wealth fund Abu Dhabi Developmental Holding Company (ADQ) has appointed Ghannam Butti Al Mazrouei (LinkedIn) as the new chairman of the Abu Dhabi Securities Exchange (ADX), according to a company statement. Al Mazrouei also serves as Secretary General of the Emirati Talent Competitiveness Council and is on the boards of Abu Dhabi Retirement Pensions & Benefit Fund and AafaQ Islamic Finance.…and two new board directors: Head of Human Capital at ADQ Reem Beljafleh (LinkedIn) and Director of Financial Services at ADQ Jawad Shafique (LinkedIn) also joined ADX as new board directors. Beljafleh boasts over 15 years of experience in human resource practices, improving employee performance, and talent management, while Shafique has 18 years of experience in investment management, M&A, turnarounds, and corporate restructuring.2PointZero appoints chairman and CEO: Recently launched subsidiary of International Holding Company (IHC) 2PointZero has appointed current Climate Change and Environment Minister Mariam Almheiri (LinkedIn) as its CEO, according to an ADX disclosure (pdf). The company has also appointed Chairman of the National Media Office Sheikh Zayed bin Hamdan bin Zayed Al Nahyan as its chairman. REMEMBER-Earlier this month, Abu Dhabi's International Holding Company established 2PointZero, a new holding company with assets worth USD 27 bn, encompassing Chimera Investment, Lunate, Citadel Technologies, Sagasse Investments, Beltone Financial Holding, and International Resources Holding. IHC will retain an 87% ownership stake in 2PointZero, with the remaining 13% ownership remaining undisclosed.