Emerging markets specialist Ashmore chose to establish its first Middle East office in Riyadh. George Mitton talks to John Sfakianakis, regional director.
Doing business in Saudi Arabia can be challenging. The country is less forthcoming with visas than its neighbours and bureaucracy can seem to work slowly. Unlike the smaller Gulf states, such as the UAE and Bahrain, which have adapted to a cosmopolitan business environment, Saudi Arabia is more traditional, particularly regarding the role of religion in society.
It was interesting, then, that Ashmore Group, a specialist emerging markets manager, chose to set up its first Middle East office in the Saudi capital, Riyadh, rather than in the UAE, Bahrain or Qatar, as many of its peers have done.
John Sfakianakis, regional director, explains that the firm relishes a challenge. And, given the size and importance of Saudi Arabia in regional terms, there is an attractive reward at the end.
“Saudi Arabia is the economic titan of the region,” he says. “No doubt.”
Born to Greek-American parents and raised mostly in Greece, Sfakianakis has lived in Saudi Arabia for 12 years. An Arabic speaker, he has worked as chief economist for most of the leading Saudi banks and for the ministry of finance. Before joining Ashmore last year, he was chief investment strategist at Mohammed Alsubeaei and Sons Investments Company (MASIC), a large and wealthy family office.
Sfakianakis found his connections were useful in setting up the Ashmore business and recruiting its team of mostly Saudi employees. There are now 12 in the team, including Sfakianakis and Johan Hattingh, a long-time Ashmore employee who has moved to Saudi Arabia to run the new business. The team manages domestic and regional equities and selected private equity investments. As yet there is no fixed income capacity, though that might come in future.
Currently, the Middle East assets are segregated accounts from family offices and high-net-worth individuals. Because these are confidential, Sfakianakis cannot say how many assets there are. The day we talk, though, the firm has just launched its first fund, a Saudi equity fund. The asset base on this product will be public.
It may be because Sfakianakis is so well connected in Saudi Arabia that Ashmore was able to set up its business relatively smoothly. Sfakianakis says that, contrary to many people’s expectations, it was straightforward to obtain the firm’s licence. The Saudi regulator, the Capital Market Authority, may have been particularly amenable to Ashmore’s application because the firm promised to hire mostly Saudi staff.
“What they don’t want is firms coming into Saudi and hiring foreigners,” Sfakianakis says. “We hire local people and we train them. This is one of our goals.”
The firm’s licence approval coincided with some of the biggest news to come out of Saudi Arabia in years – a plan to open the country’s stock market to direct investment from qualified foreign institutions, announced in July (Ashmore’s licence was awarded one month later, in August).
The timing seemed remarkably good for Ashmore. The announcement set off a flurry of media coverage of Saudi’s equity market, which is one of the last sizeable emerging markets in the world that is still fully closed to direct foreign investment.
Ashmore is now one of only a few foreign asset managers with an on-the-ground presence in Saudi, and will be in a strong position to compete with major Saudi players such as NCB Capital, Al Rajhi Capital and Riyad Capital.
Despite his connections at the ministry of finance, Sfakianakis says he did not know in advance that the Saudi cabinet would announce the opening-up of the stock market. He agrees, though, that the move, planned for the first half of this year, will be hugely beneficial for his firm and for Saudi’s capital markets in general. Many institutional clients of Ashmore Group in Europe or the US will be able to invest in Saudi Arabia for the first time, and the Saudi office will help them do it.
That the Ashmore team is present in Saudi Arabia and not in Dubai, London or New York should give it an advantage, Sfakianakis adds. He holds to a common view in investment circles: one has to live in a country to fully understand it.
“If I wanted to do business in the UAE, I would have to be there,” he says, by way of comparison. “You can’t understand Saudi Arabia by being somewhere else.”
The question of understanding a country, and a culture, is one that Sfakianakis returns to during our conversation. Perhaps it is logical – besides being an economist, he is an Arabist, with an interest in the region’s politics and development that stretches back to his student days. After studying international relations for his undergraduate degree, he specialised in Middle Eastern studies, with a master’s at the School of Oriental and African Studies at the University of London. He went on to gain a PhD from Harvard University in the US for which he completed a thesis on the economy of Egypt.
Sfakianakis’s interest in the Middle East was so great that he chose to move to Saudi Arabia at a time when many expatriate workers were finding excuses to leave. This was in 2003, just after the US-led invasion of Iraq.
“There was a lot of violence and terrorism, a lot of people thought I was mad,” he says. His scholarly interest has continued during his many years in banking and asset management and he still tries to meet and talk with policy makers as well as economists, and to view the region as more than just an “opportunistic play”.
“Because I’ve done a lot of government service, I respect people who think about the future of their countries,” he says.
Sfakianakis says his own tendency, like Ashmore’s, is to rise to a challenge, even though it may be difficult. When we discuss the process of setting up the Ashmore business in Riyadh, he recalls a previous tough job – researching his doctoral thesis on Egypt’s economy. The research was not easy, he says. Getting appointments with the right people was a time-consuming and challenging process, but it was important work and he wanted to get it done.
“I can tell you thousands of difficulties,” Sfakianakis says, referring to his research experiences in Egypt. “Saudi, to me, is a walk in the park.”
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