Tuesday 19, June 2018 by Jessica Combes

Changing gear in the investment cycle

 

Philippe Ghanem, CEO, ADS Securities, speaks to WEALTH Arabia on his firm’s technology-first strategy

The brand of ADS Securities, the Abu Dhabi-based investment firm, can be seen on the sleeves of the UAE Team Emirates cyclists as they take on the best in the world at the Giro d’Italia or the Tour de France. Investors who know the company may well suspect that CEO and Vice Chairman of ADS Securities, Philippe Ghanem, is trying to make a point.

At a time when the global asset management cycle is about to change, Ghanem sponsors a cycling team. Surely this cannot be a coincidence? For the last few years, ADS Securities (ADSS) has been a regional leader in asset and wealth management, but this was not the starting point for the business—it was originally conceived to deliver specialist financial services trading.

In 2010, if an investor in Dubai or Abu Dhabi wanted to enter the market looking to acquire assets they had to get up early and trade through the Far East or wait until Europe opened. ADSS was set up to plug this trading gap and bring liquidity into the market during a time when spreads were widening and risk increasing. In 2015 having already become the largest, by volume, trading desk in the GCC, a wealth management division was launched. And, at the start of this month, in recognition of the fast and successful growth of this investment area, ADS Securities was voted by the readers of Banker Middle East, our sister publication, as the leading wealth management firm in the region. This, after just three years of operations.

If the competition is looked at in this sector, ADSS’s peer group includes some of the largest and best-known wealth management companies in the world, along with a number of highly regarded and respected regional firms. In the past, a few of them had been recipients of this prestigious and highly sought-after Award. After receiving the Award, Ghanem put the win down to one simple but very important factor: customer service.

The message on client management, which defines the way the company works is very clear. Through all the work for every client the firm is focused on delivering the highest possible standard of service at a level that investors and traders want, according to the firm. According to Ghanem, this approach is embedded in all elements of the firm, from the development of the systems and technology, through to the relationship managers who contact each client personally.

Although it is only three years old, the wealth management team has seen extraordinary growth and recently underwent a major restructuring with the pure wealth management Division being split from the Asset Management Division, Ghanem told WEALTH.

According to Ghanem, the opening up of the Abu Dhabi Global Market (ADGM) was another significant step-forward for the UAE. The ADGM provided ADSS with the opportunity to establish a specialist Asset Management team. So, on the 7 December 2017, a new subsidiary, ADS Investment Solutions Limited (ADSI) was incorporated. Providing a wide range of services including managing assets, arranging custody, advising on investments or credit, arranging investment deals and managing collective investment funds, ADSI is leading ADSS’ corporate product development programme, according to Ghanem.

Based on Al Maryah Island under the regulation provided by the ADGM, this team has already started manufacturing products. Up until the formation of ADSI, investors had to go to the market to find the products which were the best fit with their investment strategies, but now they can opt to go with the structures developed by ADSI, said Ghanem.

In mid-May ADS Investment Solutions developed a new FTSE Russell Saudi Arabia index, the FTSE ADS Custom Saudi Minimum Variance Index. It is an index which employs a rules-based approach and has been designed to minimise the volatility of the FTSE Saudi Arabia All Cap Index, based on historical returns. As part of the collaboration, the index has been licenced by ADS Investment Solutions for a new channel for investors to access the KSA market through a stable and accessible product, and, according to hopefully give all ADS Securities wealth management clients the investment edge that they are looking for, Ghanem told WEALTH.

The role of ETFs and the phenomenal rise in passive investment over the last 10 years has been the main theme for the market. Robotic trading based on algorithmic trading and backed by artificial intelligence (AI) systems, have changed the way that a substantial amount of investment flow gets places. However, as with all investments, this is part of a cycle.

The management team of ADS Securities has always seen the move to passive investment as cyclical, but the important question is when this cycle will end. After a nine-year bull run for equities it would not be difficult to put a case for a shift from passive to active management. For ADSS, the signs of change have been building up even after another very positive US reporting season, with the FANNG stocks (the five most popular tech stocks) continuing to drive the market forward, according to Ghanem. At the start of the year the main US and European indices did wobble but recovered.

Movement in 10-year bond yields and the change in Central Bank interest rate policy which is causing investors to look again. Just three months ago there were potentially three or four central banks looking to tighten their monetary policy, but now only the US appears to have this option. These changes in underlying sentiment are causing investors to ask questions and think about the percentage of their portfolio which is actively managed.

Over the last nine years there has been very little advantage for active over passive management. “If you want to be less correlated, one of the obvious moves is back into active management, working with firms like ADS Securities,” Ghanem told WEALTH.

Some investors have already decided to head for safe havens, with gold seeing very large flows, but Ghanem and ADS Securities’ view is that through active investment there are still very interesting areas to explore, including in Tadawul. The wealth management team has also focused hugely on developing the IT systems which provide clients manage their portfolios, according to Ghanem. “Under-investment in technology is some companies’ greatest weakness, at ADSS it is perhaps one of our greatest strengths,” said Ghanem.

The first iteration of the ADS Securities OREX trading platform was launched eight years ago, and today the third-generation version is in operation with a further generation under development due for launch later this year, according to Ghanem. For a company like ADSS, which needs to provide exemplary products and flawless customer service in order to differentiate itself from its competitors, technology is the key, according to Ghanem.

He told WEALTH that ADSS management is very concerned about investment firms which do not try and understand or work with the very latest cutting-edge technologies. “They have been proactive in making sure that everyone is passionate about cryptocurrency and fully understands the implications of the blockchain revolution. Those directly involved are regularly quizzed about what they have learnt or researched that day. Part of the firm’s success has been down to the quality of the people it employs with all functions expected to be experts in their field,” said Ghanem.

Just two years before ADSS was formed, the iteration of blockchain technology was laid out in 2008 by a person (or group of people) using the name of Satoshi Nakamoto. The technology that this created has the potential to revolutionise global financial markets. Blockchain’s selling point is that it provides a secure, efficient and scalable solution for the clearing, settling and transfer of almost all assets. For challenger markets, like the ADGM, blockchain and distributed ledger technology could provide an opportunity to deliver specialist products into the global marketplace.

The ability to introduce considered and purposeful regulation which supports the growth of these new systems, rather than trying to stop or restrict their implementation, is one of the key advantages of smaller more flexible hubs, according to Ghanem.

“Most investors know that to bet against technology can only lead to losses. This is what the market cap of Tesla, which spiked higher than that of General Motors, teaches us. Smart money knows that technology wins, eventually,” said Ghanem.

In the financial services sector we are seeing the increased and applied use of AI, alongside traditional systems, which provides increased trading efficiency. According to Ghanem, this is another key factor in the evolution of the company. When technology creates efficiency, it is adopted. The speed of algorithmic trading systems has changed investment strategies, across all asset classes.

From FX through to equities, AI systems now control substantial trading flows and react in milliseconds to changes in market conditions. The future is here in these systems, whether they are part of an active or a passive strategy. According to Ghanem, there will always be a need for experienced and knowledgeable market experts who set the strategy and develop the AI, but more and more transactions are managed through automated systems.

When this is linked to the development ethereum, for example, with its integrated smart contracts, the opportunity for change is clear. Smart contracts are a robotic answer to many of the back-office functions which have grown in traditional financial centres. By using blockchain and distributed-ledger technology, many legal and accountancy actions are completed simply within the transaction, thus creating resource and time efficiency and complete accuracy.

For many investors, the volatility associated with cryptocurrencies has been a reason not to invest in the technology or even consider it. But blockchain is in its infancy and is developing at light speed. Coins from bitcoin to ether are currently being used for speculation in the same way investors trade stocks, but this will change. As the main coins become more liquid their true functionality will develop, according to Ghanem. At present, the speed and scalability of blockchain means that it cannot meet the demands of most financial systems. The amount of resource, financial and human, being placed into the technology means that it will be advanced very quickly. ADSS is a leader in embracing this change, seeing technology as the future of financial services, Ghanem told WEALTH. “One of the often-repeated mantras at ADSS is that ‘only those prepared to embrace the future and adapt will survive’,” he said.

In eight years, ADS Securities has achieved more than anyone expected, according to Ghanem. In 2010 the idea of an independent financial services company based in Abu Dhabi with an ambition to take on other global investment firms, would have gained little credence. But, in 2018 the reality is very different.

On a monthly basis more and more international companies are moving to Abu Dhabi attracted by ADS and the flourishing ADGM, Ghanem said. For investors from across the world, Abu Dhabi is now on the financial map. It is an important investment centre bringing together the East and West and with the growth of Saudi Arabia and other GCC countries, it is an important market in its own right.

The UAE offers the stability and the infrastructure which investors seek. The balanced regulation offered by the Central Bank and the freezone financial centres is helping to promote trust and is offering security to a range of firms and individuals. The difficulties faced by other emerging markets is helping bring substantial inflows to the region, and it has been Abu Dhabi’s ability to manage these flows and provide the products and services clients want, which has taken the sector forward,” said Ghanem.

So what of the future? ADS Securities and its CEO confident that this is just the starting point for the region. The recovery in the oil price and stability the UAE offers, even with some geo-political concerns impacting countries close-by means the Emirates are well placed to have an increasing role in the global markets. The speed of change in technology, the need for regulation to adapt to new market conditions and the ability of firms like ADS Securities to produce market leading products is creating a great future for Abu Dhabi and the UAEs financial services sector. So, as the riders of UAE Team Emirates flash past on the screen or stand on podiums at prestigious events, it should act as a reminder that we could well be at the point where the asset management cycle changes. 

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