The viability of alternative energy

Kuwait

Faisal Sarkhou, CEO of Kamco Invest, talks to The Energy Year about the company’s exposure to the energy sector and challenges when it comes to raising capital for green energy projects in the GCC region. Kamco Invest is a Kuwaiti non-banking financial company offering a comprehensive range of investment products and services covering asset management, investment banking and brokerage.

How has Kamco Invest’s footprint evolved in the past years?
In the last 25 years, Kamco Invest has grown in double digits, especially in assets under management. Today, our assets under management stand at around USD 13 billion, making us the sixth largest asset manager in the region as per Forbes magazine in their September 2022 issue.
Our investment banking team is quite strong. The investment banking team focuses on three areas: debt capital markets, equity capital markets and M&A. In terms of asset management, we manage around USD 4 billion in equities through portfolios and nine funds, three of which are Kuwait-focused and are the top performing ones. On the real estate side, we’re touching USD 2 billion invested on behalf of our clients in properties in the US, the UK and Germany.
Of course, energy is very important, and we have an energy sector regional equity fund. We’re working on amending it, so that we can also include renewable energy. This is our specific amendment. We also have a venture capital fund, which is called the JEDI, since it is an abbreviation of Joint Emerging Managers and Direct Investment. It’s quite a focused fund, primarily investing in the US, mainly in Silicon Valley.

How good a blueprint is the Boursa IPO for other potential privatisation schemes?
I believe it provides an excellent blueprint because what’s important in a privatisation is to have the privatised entity be prepared to be competitive. Boursa Kuwait was well positioned for privatisation and going public when we got involved and introduced international strategic partners. What’s important in the process of privatisation is to prepare the privatised entity in advance, not to think that you’ll privatise it and then fix it. There’s a lot of painful fixing that needs to be done by the government before an entity becomes private so that you don’t blame the changes on the private sector because always, everywhere in the world, it is a very contentious process. Public money, public employees, hirings, firings, everything must be handled correctly.

How significant is the exposure of Kamco Invest to the energy sector?
We’re looking into it in a deep way. We do have a fund, and we’re adding towards renewables. There’s more regulation that is coming out from the authorities to help. They put it under the ESG banner, but at the end of the day, if you’re investing in green and ESG-based products or creating products in those spaces, it’s a very positive impact. So, the regulators are starting to promote clean investing.
Raising money for alternative energy is still a challenge in the region. However, I believe that, with time, it will become more and more possible. We have to remember that we are an oil-based region and should look into creating products around alternative energies.

What are the key challenges when raising capital for green energy projects in the GCC region?
The challenge is the track record. Investors need to see it. If you talk about, for example, solar panels, they need to see how the return dynamics are because a lot of what has been happening in the world has been based on subsidies. So, if you’re going to have subsidies, how is it going to be structured? And how is the return profile going to come to investors? Investors are always wary about track records. What would be good is if the government itself created or invested in some of these products that are created by the private sector, or jointly between public and private, and build a five-year track record. After these five years, investors can see what it means, how to invest in energy and how it can create wealth.

What are your key strategic priorities for the years to come?
Our primary objective is to focus on how we digitise ourselves more because that’s very important to our clients, how we grow our assets under management, how we continue our growth trajectory and how we regionalise our operations. Today, we have a company in the UAE and one in Saudi Arabia. We’re pushing for our growth in Saudi Arabia. The UAE business is also growing robustly. Expanding regionally in size, with new products and though diversification is our key strategy.

What are the key trends that shape the Kuwaiti economy’s trajectory?
I think we’re in a position of development, getting ready for the next phase of growth. The project cycle side is going to be expedited. You hear that the oil sector has to invest into the infrastructure. I think the projects and the infrastructure will continue.
There has also been a change in government. This is healthy, because you have fresh, more youthful people coming in. You have more women coming into positions of responsibility and power, which is very good. Additionally, you have oil prices which are stable, if not trending upwards, in the coming period. Despite having electric vehicles and all of that happening, you will still need the oil and gas sector output for some time. So, the stability of the price will allow for surpluses, or near surpluses.
The government is trying to become more efficient in how it spends its money and how it conducts its activity. There is a drive for more privatisation. So, in my opinion, we’re at the stage of setting plans into motion.

How do you see the M&A market evolving in the coming year?
Consolidation is critical in the coming period. We did it in the investment sector. A number of banks are doing it right now, and I’m sure it’s going to be more common in the oil and gas sector. The K companies in particular are looking at how they can restructure themselves, as well as private sector companies.
I think the key challenge will be execution. Planning is one thing, but how you execute these mergers and consolidations is the biggest challenge.

How has the investment atmosphere in Kuwait evolved in the last few years?
I believe it’s becoming better because the country has shifted from a capital markets perspective to one of emerging markets. This has raised the profile of Kuwait for the international asset managers. The performance of the Kuwaiti stocks has been great. The volumes have been growing in the capital markets. Boursa Kuwait has been doing a good job promoting more sophisticated activity and more sophisticated products. The Capital Markets Authority, the Central Bank of Kuwait and the Ministry of Commerce and Industry have been evolving, updating their regulations, upgrading their structures and trying to enhance how businesses can grow while maintaining a safety net.

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