Performance Review

Asset Management Sector

SEDCO Capital is a world-class prudent ethical investment firm that wins numerous awards for its innovation and performance. The wholly-owned subsidiary was established in 2010.

SEDCO Capital

SEDCO Capital has pioneered a Prudent Ethical Investment approach that applies Shariah-compliant principles to investments that are ethical and responsible. This strategy has consistently delivered robust investment performance to clients that include institutions, family offices, endowments, sovereign wealth funds, ultra-high net worth individuals and other sophisticated investors.

Samer Abu Aker
Chief Executive Officer

“THE CMA HAS BEEN DYNAMIC AND INNOVATIVE, RAISING THE IMAGE OF THE KINGDOM GLOBALLY AND HELPING TO MAKE IT AN ATTRACTIVE PROPOSITION FOR INVESTORS.”

SEDCO Capital performed well across all asset classes in 2021, particularly public and private equities, but also global REITs and real estate, while our fund-raising initiatives also generated positive results.

A new institutional client’s sizeable commitment to our regional equities’ capabilities were confirmed with the selection of SEDCO Capital to manage the client’s Saudi listed equities portfolio.

We successfully completed the SEDCO Capital REIT Fund capital increase offering, which was covered by 332%, reaching a fund size of SAR 1.8 billion, with the total number of subscribers exceeding 227,000.

In international real estate, the sale of Waterside House in the UK for £57 million resulted in a 15% net IRR to Methak for a core asset that was purchased for £37 million five years ago.

Our Luxembourg-based SEDCO Capital Global Funds (SCGF) are acknowledged as the world’s largest and most diverse range of Shariah-compliant and ESG funds. All funds exceeded their targeted returns and continue to be well positioned in the markets.

The success of our scalability strategy was no more evident than in our Luxembourg platform which, for the first time since inception, passed the US$100 million threshold in terms of third-party assets under management, reaching a historical level of US$166 million by year end, an increase of 225%.

We launched two new global passive equity funds in partnership with Amundi during the year. The SC Global Listed Infrastructure Equity Fund pursues a passive investment strategy which enhances our clients’ exposure to infrastructure-focused equities. The SC Global Low Volatility Equity Fund aims to measure the performance of the 300 least volatile stocks in the Dow Jones Islamic Market World Index.

These achievements demonstrate the widespread trust in SEDCO Capital and the credibility the firm enjoys. They are also the outcome of an extensive outreach to attract new international institutional clients by positioning ourselves against internationally recognized benchmarks.

In private equity, we launched the Global Co-investment Fund II, with the program sitting at a realized exit multiple to date of 2.35x. We received distributions from the program of about SAR 500 million, achieving a DPI of 1.84x for the year.

Throughout 2021 the firm was fully ESG compliant and we were awarded the highest rating under the UN Principles for Responsible Investment (PRI).

A key element in SEDCO Capital’s strategy for the year ahead is to further strengthen our Luxembourg platform. Operationally, we will be unrelenting in once again delivering the excellent performance that SEDCO Capital clients expect of us, and to build on the many achievements of 2021.

Income Assets

SEDCO Capital offers expert advice for investors seeking returns and capital appreciation from Shariah-compliant money markets, sukuk, leasing, and infrastructure investments. The firm manages two flagship funds – one a local money market fund and the other in global sukuks – as well as overseeing a number of discretionary mandates.

"LEASING STRATEGIES MAINTAINED THEIR STRONG PROFIT DISTRIBUTION PROFILE, DESPITE CHALLENGES INCLUDING GLOBAL SUPPLY CHAIN CONSTRAINTS.”

Central banks maintained an expansionary monetary policy in 2021 to support economic recovery and growth during Covid-19. Later in the year we started to see signs of tighter monetary policy to combat inflation risks, leading to higher short-term interest rates and an upward shift in US treasury yields.

With short-term interest rates remaining low throughout the year, money market investment returns reached their lowest level in five years. The team focused on enhancing the money market fund’s absolute and relative returns by expanding its network of active counterparties and managing its duration.

Sukuk returns were also muted. The US treasury yield curve shifted upward in 2021 as market participants started to price-in higher yields over the coming few years, given strong growth and high US inflation figures. On the other hand, Sukuk spreads tightened significantly and softened the negative impact of higher US treasury yields on Sukuk prices. As a result, Sukuk achieved a positive absolute return for the year.

Leasing strategies maintained their strong profit distribution profile, despite challenges including global supply chain constraints and less favorable pricing for used equipment. On Infrastructure, we invested for the first time in two open-ended private infrastructure funds expected to deliver strong cash distributions.

SEDCO Capital’s funds and portfolios achieved positive returns in a difficult year, without taking excessive credit risks. Credit quality remains one of the firm’s top priorities. Taking into account the market and economic outlook, our team focused on implementing the correct strategy to enhance returns.

Looking ahead, we expect better returns for money market strategies as short-term rates continue to rise. Sukuk returns may be muted once again on higher rates and limited spread tightening but, as Sukuk yields adjust to higher market rates, these are expected to grow later in the year, and over the next few years.

Leasing and private infrastructure investments should continue to provide strong cash distribution in 2022, but valuations may come under pressure as short-term interest rates edge higher. We will continue to manage our strategies to achieve best possible outcomes in both absolute and relative terms.

Public Equity

The year was one of recovery as the S&P Saudi Shariah Domestic Total Return Index registered growth of 35%. More than seven Initial Public Offerings were listed on the main market as valuations remained high throughout the year.

"FOLLOWING THE STELLAR RETURNS OF THE LAST TWO YEARS, SEDCO CAPITAL’S INTERNATIONAL PUBLIC EQUITY FUNDS CONTINUED TO OUTPERFORM MOST CONVENTIONAL AND ISLAMIC COMPETITORS."

Regional public equity

SEDCO Capital’s Regional Public Equity team successfully doubled its number of Discretionary Portfolio Mandates (DPMs) in 2021. Assets under management rose by 13.7% to US$ 190 million, and US$ 12 million in profits were distributed to DPM clients. In addition, two new equity funds were launched and one was closed.

Our technical stock selection process was upgraded, while new Shariah-compliant hedging and settlement financing tools went live.

Our absolute return Income and Growth strategies achieved annual returns of 7.8% and 11.4% respectively, against targets of 7.5% and 10%. The Saudi Relative Return strategy generated 177 bps alpha from February onwards, returning 29.7%.

International public equity

Following the stellar returns of the last two years, SEDCO Capital’s international public equity funds continued to outperform most conventional and Islamic competitors. Among the best were the SC Global Real Estate Equities Fund (+36.8%), the SC US Equities Passive Fund (+28.7%), the SC Europe Equities Fund (+27.6%) and the SC Global Sustainable Equities Fund (22.8%).

The year’s highlight was SEDCO Capital’s UCITS platform (Undertakings for the Collective Investment in Transferable Securities) which went live in September with the launch of the SC LO (SEDCO Capital / Lombard Odier) Global ESG Equities Fund. This Shariahcompliant fund will encompass a systematic, multi-factor and rational approach to construct a portfolio rating highly against all key sustainability and ESG criteria.

In May, two passive funds were launched in conjunction with Amundi Asset Management. One was a global listed infrastructure equity fund and the other a global low volatility equity fund.

As the world economy recovered from the Covid-19 recession, public equity markets advanced, supported by strong earnings and GDP numbers, and the improved economic outlook. The Dow Jones Islamic Market World Index was 19.8% higher with the US the best regional performer at +28.8%.

While capital markets (measured by the Dow Jones Islamic Market World Index) delivered average returns of 26% over the last three years – including the recession caused by Covid-19 – we are expecting higher volatility and lower returns in the coming few years.

Looking ahead, we will continue to focus on constructing robust portfolios that can withstand higher volatility, inflation and interest rates. Our thematic focus will continue to be on innovation and disruptive technology, changes in socio-demographics, and ESG and sustainability.

Global Private Equity

Despite the ongoing challenges from new Covid-19 variants, SEDCO Capital’s private equity team managed to complete four new commitments in top-tier funds in the US, Europe, China and Latin America.

“PRIVATE EQUITY PERFORMANCE WAS UP 16%, A SOLID RECOVERY FROM PANDEMIC LOWS AS PORTFOLIO COMPANIES WITNESSED SOLID OPERATIONAL GROWTH AND HIGHER VALUATIONS.”

Private equity performance was up 26.7% from the previous year, a solid recovery from pandemic lows as portfolio companies witnessed solid operational growth and higher valuations. Although the recovery was not as strong as public equities, we expect the trend to continue in the upcoming quarters, with private equity catching up to public markets.

In accordance with the firm’s Shariah and ESG guidelines, there were no investments in funds holding a large proportion of portfolio companies with leverage ratios higher than 33% or dealing in non-ethical business activities.

For our Funds program, we target fund sizes ranging from US$ 250 million to US$ 1 billion, focusing on mid-market and value-add managers with deep sector-focus in the healthcare, technology and consumer sectors.

SEDCO Capital’s fund portfolio continues to move closer to its target 70/30 geographic split between developed and emerging markets, respectively.

The firm invested in four new funds during the year: a US consumer fund with a focus on education; a European tech fund focused on software and artificial intelligence; a Chinese healthcare fund; and, a Latin American consumer fund. Three of the commitments were re-ups (renewals) and one was a new manager in the program.

The year 2021 was a solid year of distributions that netted a distribution to paid-in capital (DPI) of 1.58x, highlighting the self-financing quality of the program.

In terms of co-investments, SEDCO Capital’s co-investment team completed one transaction in 2021. The company is a leading global player in the CPaaS (Communication Platform as a Service) market, and the deal was led by one of Europe’s top tech managers.

Looking forward, the firm will continue to act in line with its strategic targets: seeking new top-tier managers in developed and emerging markets, and re-ups with select existing managers.