Principal Investments

Real Estate Investments

Working closely with both local and international clients, WEPRO’s Principal Investments - Real Estate Unit provides comprehensive financial solutions for prime real estate transactions in the GCC, Europe and the USA, noting that these geographies can be amplified based on the opportunity and relationships the groupholds. The multidisciplinary approach, together with an investment banking mindset enables the group, clients and co-investors to drive value for our respective shareholders. WEPRO acts as both principal and arranger in the acquisition of controlling and non-controlling interests in direct real estate with typical equity or mezzanine investments being between US$2 million and US$10 million.

WEPRO is willing to co-invest with prospective partners in residential developments in top-tier markets together with core and value-add yielding opportunities in the office, retail and multifamily real estate sectors.

Equity Investments

WEPRO seeks to expand its network and equity exposure regionally and internationally through participation in private equity funds, both at the platform level and the fund level. Partnership positions are undertaken with renowned fund managers (regional and international) with proven track records of sourcing attractive opportunities and executing profitable exits.

Such approach provides WEPRO with an indirect, risk-mitigated exposure to the various portfolio investments underlying such funds.

Incremental benefits of such approach include potential advisory mandates and additional flow of structured credit financing opportunities for portfolio companies.

On the equity co-investment side, and capitalizing on the fund manager’s expertise, we seek to co-invest smaller equity tickets directly into the target, with the aim of achieving attractive exit multiples by way of trade sales or IPO’s.

The Principal Investments Division also encapsulates the group’s direct equity investments in associates which the team monitors closely as well as the under development greenfield industrial ventures.

Credit Investments

The Credit Investments business focuses on investing WEPRO’s capital across global market instruments, high yielding, mid-market, structured and mezzanine transactions. The main objectives include capital preservation, relative liquidity and value enhancing rotation, and management of exits.

Through leveraging a wide network of contacts, industry relations and thoroughly evaluating each investment opportunity’s own merits, the team remains flexible and efficient, considering a diverse range of structures which possess a healthy risk-return profile.

The business also partners with a range of prestigious institutions with specific sector or market expertise to find compelling investment opportunities in the Middle East & North Africa region, Europe, the US and Asia.

The team has experience working across a range of industries, such as transport, healthcare, energy, consumer goods, financial services, IT and aviation.

Situations the Credit Investments business investing include:

  • Senior/ subordinated financing

  • Bridge financing

  • LBO/ acquisition financing

  • Special situations including Mezzanine / Holdco Finance, Pre-IPO and Convertibles

Wepro Investments Strategy

This article outlines the approach and current thinking on the markets at WEPRO, which forms the basis of our trading.

First let’s outline the nuts-and-bolts of what constitute returns in the financial markets. It is a function of three basic factors:

  • Risk-Free Return

  • Beta Return

  • Alpha Return

Risk-Free Return

This typically means the return on cash, or the return on a very safe asset whose value fluctuates relatively minimally. For those investing over a long-term time horizon, this could mean a 10-year US Treasury. For those investing over a short-term time horizon or simply want a pure, low-volatility cash rate, this could mean a 3-month US Treasury or a 2-year Treasury. Risk-free rates vary depending on where you go in the world and what currency you predominantly denominate your assets in. A US Treasury rate can be supplanted by the return on, for example, a particular type of UK Gilt or German Bond.

Those seeking real (i.e., inflation-adjusted) returns will lean toward the risk-free return associated with safe inflation-hedged bonds, such as Treasury inflation protected securities (TIPS) or inflation-linked Gilts.

Beta Return

All asset classes return a premium over the risk-free rate of return. If the expected nominal future returns on equities are 7% and the risk-free rate is 3%, then the beta-related return of that asset class is 4%. Similarly, if the nominal forward returns on bonds are 4% and the risk-free rate is 3%, then the associated beta return of that asset class is 1%. A passive indexing strategy’s returns is a combination of the risk-free return and beta return.

Where We Stand

At WEPRO INVESTMENTS, our fund is currently predominantly short European equities, short the euro against major and minor currency pairs, and more bearish on Europe as a whole. We are currently bullish on the US economy and believe that the UK will do well coming out of Brexit. Moreover, we also don’t believe that globalisation efforts will expand much further and therefore thematically look more toward assets that will benefit from populism and nationalism

We believe that a geopolitical shift will be forthcoming and that many institutional investors are overweight establishment derivatives. The market is underappreciating the level of risk in the EU. Italy’s political situation, in particular, presents tail risk to the European project and the single currency system.

The euro, as a whole, is a difficult long-term proposition. For one, a single currency system must have adequate flexibility to accommodate both local and aggregate economic problems when they arise. When a country forfeits its native currency to join a single currency bloc it forfeits direct control over its monetary policy. If a country has debt problems and it lacks policy control over the usual factors that provide breathing room, whether it be altering the interest rates, extending its maturity, or changing whose balance sheet it’s on, it will have a challenging time managing that debt. Greece is a prime example. In other words, in a single currency bloc economic structures and business cycles must be compatible enough to operate on Eurozone interest rates. This isn’t always realistic because individual economies are different and not always in sync or in the same level of health.

Moreover, a single currency must also facilitate conditions to those investing in a particular part of Europe. When interest rates are low, as they are currently, it makes many forms of financial assets unattractive because their yields are low. This retards the flow of capital inflows. While some countries can benefit from the low yields and low borrowing costs, others will prefer higher rates or at least to a level that will help promote higher growth and long-term increases in employment while keeping wages at stable price levels. Our positions are not held overnight and leverage is utilised to realise specific return and risk targets. Inherently, some view the term “leverage” with a negative connotation and view it in black-and-white terms, thinking that no leverage is good and any leverage is bad. However, when looked at from a less biased perspective, one will find that a moderately leveraged approach that spreads its bets across numerous assets, numerous themes, and numerous trades can be considerably less risky than one that is unleveraged, but highly concentrated.

Putting These Together

Sources of beta return are limited. Namely, only so many asset classes exist. Returns from beta are only limited to being long these asset classes because over the long-run they earn a spread over the risk-free rate. In passive investing, this is intuitively understood – that provided enough time, they are expected to outperform cash.

For capitalistic economies to function properly, it is vital that financial assets outperform cash and when they don’t (i.e., economic depressions) central bankers have tangible incentives to ensure that monetary policy is sufficiently eased to get this process going again. This is not always true, as countries default and empires come and go, but passive investing is fundamentally about chasing the spread of the return associated with beta.

Alpha, however, functions quite a bit differently from beta. Sources of alpha are not delimited by a small subset of betas and can be derived in various ways – singling out specific securities to go long or short, using derivatives, arbitraging valuation differences, among other methods.

While we will benefit from betas to some degree by going long certain assets, our approach is alpha-focused. If alphas are wisely selected, a superior portfolio will be created because there are more of them than betas and they are also, on average, less correlated. When alphas are judiciously chosen, one obtains more attractive returns streams to form a more efficient portfolio.

Naturally this means that some risk must be taken. Especially since deviation from the betas is central to our approach. The idea is then, how much risk will be taken?

Most investors choose to have an asset mix dominated by betas, particularly equities. They are the highest returning betas of the mainstream asset classes available to the broader public and thus also contain the highest risk. Therefore, most passive portfolios held by the public, and many institutional managers, contain high levels of beta risk that are concentrated in equities. Though pension funds try to diversify their portfolios, limits to their use of leverage lead to higher concentrations of stocks (because they chase the higher returns associated with them) and beta risk and end up becoming over 90% correlated to traditional equity markets.

Styles, Securities, and Strategies

Equities and Stock Indices

WEPRO’s goal is to create powerful and replicable investments that are diversified across regions, markets, sectors, and individual security names all while fitting our risk mandates. This approach is applied systematically across our portfolio to meet the investment needs of our clients. Equities and stocks indices is one asset class we integrate into our approach to augment our returns potential and provide excess returns over standard benchmarks and traditional asset managers.

Fixed Income and Credit Instruments

Fixed income and credit helps diversify the portfolio and provide an additional source of beta-related returns while seeking value-added opportunities within the asset class more broadly.

Multi-Strategic

We are not limited to investing in one specific asset class or one particular strategy. Diversification is important to improve reward-to-risk returns in our portfolio. When properly applied to achieve balance, we improve risk-adjusted returns over common benchmarks. Enhanced through the judicious use of leverage, excess value is created for our clients.

Equities and stocks indices is one asset class we integrate into our approach to augment our returns potential and provide excess returns over standard benchmarks and traditional asset managers.

Long/Short

We are not systematically biased to being long or short any particular market and flexibility is key to our approach.

Unlike most institutional money managers, we will not lose money because we are limited in how we can allocate our capital in terms of directional bias. Long-only equity or credit managers lose money when their asset classes turn down because of enforced restrictive mandates.

Moreover, this keeps our performance uncorrelated to broad-level benchmarks, indices, and other asset managers.

Diversified Growth and Returns

Our returns can come from a variety of different sources, strategies, and approaches. Our returns can be risk-free (high-quality sovereign bonds), beta-related (indices), or alpha-related (deviating from the betas through value-added approaches).

Opportunistic

Because of our flexibility and multi-strategic approach, we can approach any asset class from a variety of angles. Accordingly, we can act on assets that may be undervalued or overvalued based on both quantitative and qualitative factors.

Leverage

Many institutional managers are constrained in the amount of leverage they can use, if they are permitted altogether, as well as what direction they can play the markets and what instruments they can use to express investment theses.

Our fiduciary mandate to our clients can be pursued wholly unconstrained by such factors.

Because we can employ leverage, and do so prudently, we can generate higher returns. Leverage can also serve as a dial, to be turned up or down at our discretion, based on opportunities in the market.

Our diversified approach allows us to systematically improve the reward-to-risk in a portfolio. When this is amplified through leverage you are getting not only higher returns, but also within the framework of higher risk-adjusted returns as well relative to traditional asset classes and traditional asset managers.

What am I investing in?

Exchange Traded Funds

ETFs for short, are made up of broad holdings of stocks or bonds. Often, these ETFs replicate an asset class or index like the S&P 500 or Dow Jones Industrial Average.

Asset Classes

Asset classes represent certain categories or classes of stocks or bonds. Each ETF represents an asset class in your portfolio ranging from Large Companies to Real Estate.

Find and read our ETF prospectuses here.

Today's Top Companies

Every dollar you invest is automatically diversified over 7,000 stocks & bonds. This is all possible due to Fractional Share Ownership in our portfolio ETFs.