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Investment Banking Essay Research Paper Introduction to (стр. 2 из 2)

The fund management division has recently established EFG-Hermes UK, which will facilitate the management of country, and regional offshore Middle Eastern Funds.

The Mutual Fund group’s goal in managing equity, fixed income and balanced accounts is to produce superior returns while minimizing volatility. In the firm’s opinion, asset allocation is the most important factor in determining portfolio returns and risk levels.

Each fund’s stated investment objective and policy determines portfolio asset allocations, which the Investment Committee adjusts depending on the overall economic outlook and equity valuation.

EFG-Hermes uses a “bottom up” approach for equity management, concentrating on both fundamental and technical analyses. The firm believes that predicting future securities values depends mainly on forecasting future earnings and the market valuation of these earnings. In this context, it seeks to identify growth opportunities or deeply discounted value plays.

A “top down” strategy is used for fixed income securities, focusing on interest rate forecasts followed by duration issuer quality and security liquidity.

The following table shows an example of the performance of funds managed by EFG-Hermes performance update. It compares years 1996, 1997, 1998 as well as mid year, quarter, and last month.

The table shows that all funds have been going down in 1997 then increased in 1998. This was because in 1997 the entire Egyptian market was going down starting February. In 1998, the entire market went up. The situation of the market could be detected from the Capital Market index at the bottom of the table. One of the factors that helped the funds of EFG-Hermes is that it began to purchase stocks in Mobinil in 1998. The following table shows the top 10 performance stocks in which EFG-Hermes invested in.

Each of the funds has a prospectus (as previously explained). After the table are 2 examples of the prospectuses of two funds (Al Rajhy and Banque Du Cair)

Portfolio Management

The difference between a fund a portfolio is that for the fund, the money

managed is not owned by one individual, but instead by a group of people. As for the portfolio, it is the money of one organization or person.

A conventional portfolio is formed out of a mixture of three asset classes; Stocks, Bonds and Cash (T-Bills/ Bank Deposits).Diversification among asset classes reduces the volatility of portfolio return and hence the overall risk. It is a well-known fact that good performance is mainly attributed to wise asset allocation among asset classes; i.e. low equity exposure at market peak and high equity exposure at trough. The second contributor to good performance is picking the right securities within each asset class; a process referred to as “stock picking”.

At EPMG, there is a track record of wise and fairly aggressive changes in asset allocation to benefit from market cycles.

As for stock picking, EFG-Hermes follows a bottom-up approach in making investment decisions. Its potential universe of stocks includes only solid companies with healthy financial position and sustainable profits. The firm thus pay a lot of attention to Fundamental Analysis. But timing is what counts in investments so the firm uses a few Technical models as well to determine the target buy/sell levels.

At EPMG, the firm has a product for clients with different risk tolerance levels. The Indexed Portfolio is for clients who follow the market closely, believe in asset allocation and who would like to form a portfolio which replicates the performance of the market as represented by an index. This is the only Indexed Portfolio designed for the Egyptian market so don’t bother looking elsewhere.

For a less aggressive client with a normal risk tolerance level, EFG-Hermes offers its Balanced Portfolio which depends on its capability in making aggressive asset allocation and stock picking as well. The aim for Balanced Portfolios is to achieve a descent return over a 3-4 year investment horizon while safe guarding the principal in any environment.

For the very cautious client who does not mind giving away potential high returns for a safer investment, EFG-Hermes offers the Capital Guaranteed Portfolio in which a First Class Bank (The Arab Bank PLC.) guarantees 100% of the principal while leaving the upside potential partially opened.

EFG-Hermes deals with International Custodian Banks which means that its clients are not exposed to credit risk. The firm provides its clients with monthly detailed Valuation Reports, News letter which keeps them up to date with the current environment and its View on the Market.

EFG-Hermes’ portfolio management company, Egyptian Portfolio Management Group (EPMG), offers tailored services to institutional and high networth individual investors. The firm’s partner in EPMG is the ARAB BANK plc, the fourth largest Arab Bank with total assets exceeding $ 20 billion as of end 1996.

Investment Objective

The Company’s investment objective is long term capital appreciation. The Company seeks to achieve this objective by investing in Egyptian equity and equity related securities. No assurance can be given that the Company’s investment objective will be achieved

Investment Strategy

The mission in EPMG is to provide investment management excellence to its clients which entails the identification of each client’s return / risk profile and the design of a suitable portfolio to match this profile. The firm’s objective is to achieve for its client a sustainable superior performance over a long period. Its investment strategy is based on a bottom up approach. Its approved list of stocks is chosen and periodically updated on the basis of fundamental strength of the underlying companies. This means that it does not consider daily changed in the stock market, rather on the performance of the company itself. However, the weight of every stock in the portfolio as well as the overall equity portion of the portfolio is continuously revised to reflect technical factors which relate to the supply-demand of the stock(s) in the market. To allow for liquidity, a model portfolio typically includes 15 companies with an above average size in terms of market capitalization.

Investment Policy

The Company invests primarily in securities of companies that are established or doing a substantial part of their business in Egypt or which are listed on the ESE. The Company seeks to acquire a prudently diversified investment portfolio in terms of exposure to any one issuer or group and in terms of exposure to any particular economic sector. The Egyptian equity securities in which the Company invests consist predominantly of common stock and preferred stock of Egyptian issuers, although the Company may also invest in convertible securities, options and warrants of Egyptian issuers if they are available. The Company does not invest in securities of start-up companies, other than in connection with privatizations.

The Company also invests in securities of companies that are being privatized by the Egyptian Government or divested by public sector enterprises. The Directors believe that these privatizations will have two significant results: a shift of management from government and public sector control to the private sector and the opening up to development of certain strategic economic sectors. Each privatization transaction is subject to its particular political and economic factors, which may vary the terms upon which investors, such as the Company, may participate.

Subject to the investment restrictions referred to below, the Company is allowed to invest in unlisted securities but will only do so if the Manager holds an expectation that the relevant securities will be listed within one year of the relevant investment.

The Company’s primary focus is on Egyptian issuers of above average size in terms of the market capitalization, although the Company reserves the right to invest its assets in the securities of issuers with smaller market capitalization’s (companies with an average market capitalization currently being, for these purposes, companies having a market capitalization of approximately US$275 million). Neither the Company nor the Manager are involved in the day-to-day management of portfolio companies and in no circumstances does the Company acquire legal or management control of any such companies. However, because of its shareholdings, the Company may have the power to influence management. It exercises this power only in extraordinary circumstances, including in connection with the implementation by the Company of an exit strategy in respect of any investment.

Pending investment or re-investment in Egyptian equity securities of the proceeds of the issue of Shares or the proceeds of any realization of investments or distributions to Shareholders, and to the extent otherwise considered appropriate by the Directors for meeting cash needs, the Company invests all or a portion of its assets not invested in Egyptian equity securities in cash deposits, money market investments and Egyptian or OECD government securities.

The Company’s assets are denominated principally in Egyptian Pounds and US Dollars.

Investment Rationale

The original rationale behind the establishment of the Company and the Initial Offer was the Directors belief that Egypt was economically diverse and offered attractive and varied investment opportunities and that economic reforms and the third phase agreement with the international Monetary Fund would improve growth prospects for the country. Many Egyptian companies were experiencing growth assisted by an Egyptian Government committed to market liberalization, a reduction in government bureaucracy, privatization and policies favoring exports. The Directors continue to hold these beliefs and consider that Government policy and economic and market growth since the Initial Offer is wholly consistent with such beliefs.

Portfolio Guidelines & Constraints

As earlier mentioned, the allocation of a client’s assets is based on his return / risk profile, and is guided by a few constraints. Following is a typical list of such constraints:

1. EPMG will not invest more than 20% of the Net Asset Value of the portfolio in securities which are not listed on the Egyptian stock exchanges or other regulated stock exchange.

2. EPMG will not invest more than 20% of the portfolio in any one stock.

3. EPMG will not invest more than 30% of the portfolio in any one economic sector.

4. Generally speaking, EPMG invests in Egyptian Securities. However, given window opportunities, EPMG will be allowed to invest up to 25% of the portfolio in US$ denominated Country / Regional / Global funds.

5. EPMG will not buy or sell commodities, futures or options contracts.

6. EPMG will not deal short or on margin except after getting the client’s written approval.

7. The portfolio will be kept with a Custodian Bank. EPMG will be allowed to deal with the portfolio on a Delivery versus payment (DVP) basis.

It is imperative to emphasize that every client drafts for EPMG his own guidelines. The client has the right in interfere in any decision made by the firm, but he doesn’t do so because that way he would be managing his own money, and there would be no need for a fund manager like EFG-Hermes.

Risk Factors

Investing in the Company involves certain considerations in