That might seem like an obvious idea, but Shankar — the V stands for Viswanathan but he seldom uses it beyond an initial — has elaborated it into a philosophy that underlines Gateway’s investment strategy.
“B is for Bitcoin. I’m not against digital currency, and think financial transactions will be revolutionized by technology at every level, from how we pay for things to global trade. But cryptocurrency is risky and I just don’t see the need.
“A is for Argentina. Lovely country and lovely people, but historically it has defaulted on its debts every 20 years or so. Now it’s issuing a 100 year bond. That’s also crazy.
“T is for Tesla. Great technology, but it produces just 100,000 cars a year and loses a lot of money. GM produces ten million cars and is profitable, but has the same market capitalization as Tesla. Now that’s crazy too,” he said.
He makes a distinction between digital finance and cryptocurrencies, like Bitcoin, which he believes have all the elements of a classic stock market bubble. “I was having a massage recently in California and the masseur started asking my opinion on Bitcoin. It was a moment like the famous shoe shine boy on Wall Street in 1929 asking JP Morgan’s advice on stocks,” he said.
Nor, despite the aversion to Argentinian debt, is he against investing in particular countries, and he has some enthusiastic opinions on the opportunities available in Saudi Arabia, more of which later.
And some darlings of the hi-tech scene draw his admiration despite their high valuations. “There is another BAT, I sometimes remind myself — Baidou, Alibaba and Tencent — all highly valued and profitable companies from Asia,” he said, referring to three of the most successful Chinese companies in the e-commerce sphere.
“I’m not some cave man against anything new in technology. I think e-commerce is changing the way we live, from how we watch films to the food we eat, to media, communications and health care. At the heavy end, digital technology will revolutionize such basic things as cement and oil production. It would be ridiculous to ignore it,” he said.
Shankar’s investment philosophy has been honed over a career in banking with Bank of America and Standard Chartered, where he was chief executive for the Middle East region for 13 years, moving the regional headquarters from London to Dubai in the process.
He had always wanted to get involved in private equity, and had a strategy of focusing on the emerging markets of Africa, MENA, India and South East Asia that he knew well from his Standard Chartered days.
Gateway was able to assemble a top-notch board of advisers and executives, including Mohammed Al-Shaibani, director general of the Dubai Ruler’s Court and executive director of Investment Corporation of Dubai, the emirate’s biggest investment group. The Nigerian cement tycoon Aliko Dangote (“the richest black person in the world” according to Forbes magazine) and Iyad Malas, the highly regarded former chief executive of UAE-based retail giant Majid Al Futtaim, are also among a group of celebrity business executives involved with Gateway. “Recent investments by Gateway include a water supply company in Indonesia, Dangote cement in Nigeria and health care in Singapore. We’re also attracted to real estate in Africa, which fits all the criteria we set on demand and demographics. The portfolio is doing well and there could be a couple of exits within six to nine months if the IPO market allows,” Shankar said.
He keeps three key figures in mind: 65, 9 and 26. “We have invested 65 percent of the funds committed; we’ve returned 9 percent to investors so far; and the mark to market value of the portfolio is more than 25 percent up,” he said. The firm’s fund, Gateway Fund I, attracted $757 million of commitments, and there could be another fund launched in the next 12 months, when market conditions are appropriate.
At the moment, the private equity market in the Middle East exists under a black cloud called Abraaj. The troubles at the region’s biggest indigenous buy-out firm have cast a pall, and there have been numerous reports of investors looking to take funds out of private equity and holding back from fresh investment.
Having been at the heart of private equity in Dubai for a number of years, in markets overlapping to some degree with Abraaj, Shankar has firm views on the repercussions, though he points out that he does not have detailed knowledge of what happened “any more than what I’ve read.” But he did say: “I was talking recently to a big US investor who really understands emerging market private equity investing. He is a true believer in the fast-growth economies in the region and beyond. He said it is really sad what is happening at Abraaj. Big US investors were becoming more used to doing business in the EM space, but now it has frozen up. Its like the aftermath of a terrorist attack. When one takes place, people are frightened and stay away from that city or that country for a while afterwards. So what has happened at Abraaj is a tragedy for all of us in the business.”
But he added that it had not affected Gateway’s business so far, as the firm is not currently in fundraising mode. That could change quickly though, and the investment opportunities in Saudi Arabia could be the spur to get back into fundraising. “I believe in Vision 2030. The change the Kingdom is going through is phenomenal. What the king and the crown prince are doing is to try to bring about fundamental change — in society, in culture and in the economy — in a few short years that should have been done decades ago.
“It is the biggest story in the Middle East of this century. It is comparable to the perestroika and glasnost changes in the Soviet Union, and the transformation of Chinese society and economy of recent decades. I think there are a lot of similarities between Mohamed Bin Salman and the Chinese president Xi Jinping. Both have focused on concentrating power and rooting out corruption. It certainly has not done the Chinese economy any harm.”
Shankar has worked with many of the executives involved in Saudi Arabia’s investment scene, particularly some of the leading lights of the SoftBank Vision Fund, which is investing billions in hi-tech opportunities and is backed by the Saudi sovereign investor the Public Investment Fund.
But while that end of the market is not for Gateway, there is still huge opportunity in the Kingdom itself, he believes. “Saudi Arabia fits all the models we use for investment. It is the largest consuming economy in the region, and has basic needs like food, shelter, health care and education. That is our speciality,” he said.
“I’m looking forward to investing more in KSA, there are real opportunities there. But it has to be done in partnership with Saudis, and that is what I am looking for,” he added.
Gateway is particularly interested in the opportunities in the hospital sector, where there is a raft of investment possibilities opened up by the privatization of medical facilities in the Kingdom under the National Transformation Program.
He is in talks with one company in particular, and he reeled off the names of some of the biggest Saudi investors as potential partners, but does not want to go public on the transactions until they were ready for implementation, maybe later this year. “But it needs some smart Saudi money to come in along side us. We’re in discussions with top Saudi investors, really good people, to do it with us,” he said.
He is a firm believer in waiting until the time is right for a transaction, and applauded the Kingdom’s decision to hold off the initial public offering of Saudi Aramco until next year. “It’s best they take their time over it. There is no point just pushing change through for the sake of it, it has to be right,” he said.