A recent homegrown option for rich Lebanese to invest in a fund with global reach is being pushed into the market by Banque Libano-Francaise (BLF) — in fact, it is the only such locally founded fund, according to the bank. Domiciled in Luxembourg but managed by the BLF Fixed-Income Desk in Beirut, the fund comes with a track record of six-plus percent annual returns and, more interestingly, with a three-person board whose chairman is an independent director.
Incepted in September of last year, BLF’s Total Return Global Bond Fund has been marketed to BLF clients since January and has just completed formalization of disclosure and governance practices, which include four annual board meetings and compliance with regulatory regimes in Luxembourg, Switzerland and Lebanon. Besides its promise on governance, the investment paper comes with a hope to co-create a local asset management industry, says Jamil Koudim, head of Fixed Income at BLF.
Participation in the open-ended fund requires a minimum subscription of $100,000. Above that threshold, the fund is open to any investor who values the opportunity to invest in global credit markets. Emphasizing the fund managers’ direct accessibility, BLF is targeting the product to high-net-worth individuals that are Lebanon-based or expatriate Lebanese, Koudim says. “We are not comparing ourselves to the big names in the global funds industry like the Templetons or Pimcos, except for the advantage of having the fund manager based in Beirut and knowing the institution, BLF,” he adds.
Koudim’s team honed their strategy for the fund in proprietary trading with BLF’s own money, using the same methodology with a 6.4 percent annual return over two years from mid-2010; BLF then seeded the fund last September with $10 million, becoming a co-investor. The bank obtained approval of the fund from Banque du Liban, and also took the steps for compliance and registration with Swiss financial market supervisor FINMA and Luxembourg’s Commission de Surveillance du Secteur Financier, including adherence to Risk Management and Conflicts of Interests policies and a clear board structure for fund governance.
In formal terms, the BLF team is the fund’s investment advisor, and Libano-Francaise Finance, a Geneva-based unit of BLF, is the investment manager and monitors all decisions for compliance with the fund’s statutes. These terms say that the fund can allocate no more than 20 percent to non-investment grade bonds and must also limit exposures per issuer.
In the same spirit as those written stipulations, the team follows a conservative approach. However, the fund is not a capital-guaranteed product, Koudim emphasizes. “Capital preservation is a main objective,” he says. “The second aim is to generate moderate return, for anywhere between four and seven percent.”
The strategy is international with geographic emphasis on Europe, the United States and the Gulf countries. The heaviest allocations have been to European countries and cash, as per the published fact sheets in the last quarter of 2012. Allocations by sectors are focused on banking, insurance, utilities and telecoms.
In designing the fee structures, the managers oriented themselves more toward international than local standards, because of the lack of reference points in the Lebanese fund management scene. “The management fee is 0.75 [percent] and there is a performance fee of 10 percent of any return above 5 percent, the hurdle rate. There is a high watermark provision, which is also to the benefit of investors. We thought this was a fair deal,” Koudim says.
BLF wants to build on the first product and add new fund offerings, but it is giving itself time. According to Koudim, the aim is to grow the fund’s assets under management to $50 million and then launch new funds with different strategies in roughly two years.
Tapping the expertise
The new BLF fund is a young product by an ambitious team, judging from the impression conveyed by Koudim, who joined the Lebanese bank three years ago following a stint with Credit Suisse in London. He envisions the product as forerunner of a local asset management industry even as institutional investors are still missing regionally.
Koudim acknowledges that concerns over transparency and problematic infrastructure in Lebanon have made it difficult to warm up European and American investors to the idea of basing fund management in Lebanon, despite the high expertise that Lebanese demonstrate in the financial industry worldwide.
This notwithstanding, Koudim is enthusiastic that the creation of the BLF bond fund can find many followers in Beirut’s financial community. “We hope that this grows and gets the appeal that it deserves under the aim of developing an asset management industry in Lebanon,” he says, “whether from a front office perspective, the fund management perspective or from the research side.”