Focusing on Saudi SMEs
Compliant with Islamic law
US asset manager Franklin Templeton says it plans to create and introduce financial products in Saudi Arabia that takes advantage of both international investor interest in the largest Arab economy as well as local appetite for global markets.
This comes after the company agreed in principle last week with the Public Investment Fund (PIF) to channel as much as $5 billion of investments into Saudi markets.
“We’re going to target both sides of the spectrum, both attracting international money and widening the offering for local investors within the market,” Riyadh-based Salah Shamma, head of investment, and Middle East and North Africa equities, told AGBI.
“We’re looking to develop further products that provide global investors access to the market.”
Last year, Franklin Templeton, which manages $1.5 trillion of assets, opened a regional office in the kingdom, and created a bond fund and an equity tracking fund covering Saudi securities.
The Saudi stock market is, at $2.5 trillion, by far the biggest in the Arab world by total market capitalisation.
Although “sector agnostic”, Shamma said Franklin Templeton will first look at Saudi businesses that are aligned with the country’s economic diversification goals, including aviation, healthcare and renewable energy.
In a non-binding memorandum of understanding with PIF, Franklin Templeton agreed to facilitate investment in the local market, particularly in small and medium-sized businesses, through exposure to equities, fixed income and private credit.
“We’re coming in from the ground up to build our capability and build a local asset manager,” Shamma said.
Franklin Templeton last week also reached a $150 million initial agreement with Hassana Investment Company, the investment arm of the government’s General Organization for Social Insurance, to develop private credit agreements.
These deals will comply with Islamic law and mostly target SMEs.
“There is an opportunity-set within that segment of the market that tends to be less covered by your typical financial institutions,” Shamma said.
Islamic law sets clear guidelines on permissible financial activities. These prohibit practices that involve riba (usury), gharar (excessive uncertainty) and haram activities such as gambling and alcohol.
The kingdom is investing in developing its capital markets to encourage private sector investment in the largest Arab economy.
Last year total assets under management in Saudi capital markets passed SAR1 trillion ($270 billion) for the first time.
