Franklin Templeton
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LifestyleTranscript
00:00Hello and welcome to another special podcast from Khalees Times.
00:03My name is Sunithi and today we have with us Mr. Amar Mehta,
00:06who is the Head of Retail for Middle East, Africa and Eastern Mediterranean for Franklin Templeton.
00:11Thank you so much Mr. Mehta for taking time out for us today.
00:13Now in the world of finance and investment, we have a lot of amazing investment options,
00:19but sadly a lot of people don't understand them well.
00:22As much as it is important to earn well, but if we don't invest it judiciously over our
00:28long working careers, it cannot lead to wealth creation of the way that we always aspire or dream
00:34of. Now last year, UAE's Securities and Commodities Authority brought in some changes
00:40which led to different sets in public distribution of funds.
00:46Before we dive deep into the world of investment,
00:50can you tell me what these changes are and what it means for the distribution of funds?
00:54Sure, so the regulator who kind of regulates mutual fund industry in the UAE, they are called
01:02ESCA, which you referred to correctly as Emirates, you know, Security and Commodity Authority.
01:07So effective April 1st, and this was announced in January 2023 last year, effective April 1st,
01:14a retail investor like you and me cannot buy a foreign fund in the UAE, which basically means
01:20that we can, if we want to invest, we can only buy locally domiciled funds. That's a big change
01:27that has put into effect starting April of this year.
01:31So that means we might be missing out on the foreign
01:34funds and the growth that is happening in different markets.
01:37Yes, I would say to an extent only in the interim because asset managers are working
01:43out for solutions and the solution is to kind of create locally domiciled funds that could
01:48feed into the master funds that you were buying anyways. And that kind of, you know, fixes the
01:54problem, which basically means that a retail investor can invest into a foreign fund, but via
02:02a locally domiciled fund.
02:03Right. You used two very interesting words here, feeder fund and master fund. Could you explain
02:08the difference?
02:09Sure. So basically, a master fund is the fund which invests directly into the securities,
02:15be it equity, be it fixed income or be it cash. Whereas a locally domiciled fund, you know, the
02:21intent is to kind of pull money from investors and move that money to the master fund so that
02:27the master fund can invest into different securities depending on the objective of the fund.
02:33Interesting. And when we talk about the regulatory changes, how did Franklin
02:38Templeton respond to these changes?
02:40I would say that Franklin Templeton has always believed in embracing the local regulation.
02:46While we are a global firm, we bring local, you know, local perspective into play. So we've
02:51embraced the regulation pretty well. I would say that we are very uniquely positioned in the sense
02:57that we are one of the very few international managers who has a big setup in the UAE and
03:02we've been here since the year 2000. And why do I call it as uniquely positioned is because we,
03:08you know, manage money apart from just being a sales and marketing office. So it's a full-fledged
03:14office with 45 people in the office and we invest into UAE as from a fixed income perspective,
03:22from equity perspective, and also broadly into the region, which is MENA and Frontier Markets.
03:29What we've done is, given that we have a quite comprehensive license, we've upgraded that license
03:35and that license allows us to domicile funds locally, which basically in layman terms,
03:40you know, create local funds. And these local funds would then invest into the
03:44master funds, which will help investors get access to global strategies.
03:49That sounds brilliant. And yes, like you mentioned that you've been in the region,
03:53in fact, Franklin Templeton has been one of the very few companies who invested in the region
03:58early and you've stayed here all this while. And because you have experience of more than
04:03two decades under your belt, could you give us a perspective on the changes that have come in the
04:08last two decades in terms of EMCs here and investments? Sure. I would say that a lot has
04:14changed in the last two decades. I have been in this country for about 13 years, but I can tell
04:20you that the journey has been very, very interesting from just being here to tap the
04:25sovereign wealth funds and the family offices investments. I think, you know, a lot of
04:31international managers have realized the potential of retail distribution and retail
04:37investor participation in this part of the world. And as a result of which I would say the interest
04:43from investors has also gone up substantially with the growth in the population. Today, we are at
04:49about a 10 million population year with a GDP of half a trillion or more, which basically means
04:54that from a per capita GDP perspective, this country would be in, you know, one of the top
05:00slots, which basically means that investors want to invest their money, you know, which is their
05:05disposable income into funds. And what has changed is the accessibility of funds today, not only that
05:12you can buy global funds, you know, we also offer Islamic funds, which are for faith based investors.
05:20And we also offer regional capabilities with the growth that we are seeing in the region. And in
05:25particular UAE, you know, we have offerings that kind of can cater to those needs as well from
05:30investors perspective. That's interesting. Now, when we talk about investments, there is a term
05:35that often comes into readings that's professional investors. So what are those and how are they
05:41different from normal retail investors, so to say? So I would say that professional investors are
05:46those investors which has the right knowledge, has the experience and has the net assets. So,
05:53you know, investors like sovereign wealth funds, regulated entities, regulated corporates,
05:59and even individuals, but, you know, needs to kind of come through this criteria of knowledge,
06:05experience and net assets. These are termed as professional investors, the professional investors
06:10can invest in mutual funds, subject to a minimum ticket size. And I'm talking about mutual funds
06:15means foreign funds, obviously, local funds, they can invest as per whatever is available in the
06:21prospectus. But investing in foreign funds, the minimum ticket size, as per ESCA's regulation is
06:26half a million dirham, which is approximately 136,000 US dollars. All right. Yeah, that's a hefty
06:33ticket. And surely somebody who understands the industry well would get into it. Now, if we had
06:37to get more knowledge of the kind of products that you briefly mentioned about the Sharia funds and
06:43the other Islamic and non Islamic funds that you have. But if somebody wants to get full depth
06:49knowledge, where and how can we get in touch with and how does it work?
06:53See, I would say for investors, you know, let's start, you know, let's take a step back and kind
06:59of think about what an investor actually does, right? The first thing that an investor usually,
07:07you know, they usually do is that they open a bank account. And I think as a resident of the UAE,
07:12all of us have multiple bank accounts. So I think that is a good starting point, you go to your
07:17bank, most of the banks, they distribute funds, they have a good set of relationship advisors,
07:23who are responsible to kind of advise and guide you on mutual fund investments. So that is where
07:30I would say is a good starting point for any investor to go because, you know, banks are
07:34unbiased. Right. And that gives you a good perspective, you know, based on your risk
07:39appetite and based on, you know, your different parameters, they will guide you in terms of which
07:44fund suits you the best. You talked about, you know, the trust factor when it comes to banks.
07:51When we talk about trust, there's transparency that is very important. How does Franklin
07:55Templeton ensure that there's transparency for the clients? I think mutual fund as a
08:00asset category itself is extremely transparent. And I'll explain you in layman's terms how.
08:06So mutual fund is one investments where you get to know where you are investing into,
08:11right. So it's there is a term called a fact sheet. A fact sheet is a set of document that
08:16we publish every month, which tells you where exactly your money is getting into. So obviously,
08:20you have 100% transparency in terms of where your money is invested into. Second is that I would say
08:27there is a net asset value that is published every day. So you know whether your investment
08:32is going up or your investment is going down. So you have a clear transparency in terms of what
08:37it takes, you know, for a fund to do well or not do well. Then I would say that we also have,
08:44you know, provide access to, I would say, white papers and, you know, thought leadership
08:52papers where we give you different perspectives on what's happening in the world. Let's say,
08:57for example, you know, what is our perspective on the recent UK elections? What's going to happen
09:02in the US when November hits in? So I would say that these are just one or two examples,
09:07but we kind of touch upon all the topical issues and we publish that. And over and above that,
09:14we also kind of provide you information on your investments. So there's something called as
09:18managing commentary, which tells you about your investments, what's happening there,
09:23why are we investing into these securities, what is the rationale behind it. So there's a good
09:28macro backdrop that we provide every month and every quarter, depending, you know, on what kind
09:34of, you know, perspective you want on the fund. That's really interesting, because I think even
09:40people who get daunted by the whole cycle of investments, if they read up, they would be
09:45able to understand and they can stay abreast with whatever is happening. That's very encouraging.
09:50Now, when we talk about long term investments, there is a term again, dollar cost averaging
09:55that is used very frequently, and rightly so. But for our viewers, could you just break it down
10:00on what it means and how it impacts the long term investors? I think dollar cost averaging is the
10:05best way to invest in a mutual fund. And I'll tell you why I you know, think, think about it from a
10:11layman's perspective, again, like an investor who's investing, what are the biggest fears the person
10:18has one is that, you know, there is always a fear that I don't want to invest when the market is high
10:23and sell when the market is low. That's the first thing. Second is when should I be investing into?
10:28And, you know, should I exit now? Or should I exit later? So these are some of the issues that an
10:35investor faces at any point of time. And that is the reason why I would say an investor requires
10:40an investment advisor. So please do not make investments on your own consult a financial
10:45advisor. That's my first starting point. Then I would say the other things to consider is that
10:51when you're making investments, you know, when you're doing dollar cost investing,
10:56the first thing think about it, like you earn every month, so you need to save every month,
11:00or you need to invest every month. That's exactly what dollar cost averaging brings on the table
11:05discipline, right? So it helps you because you agree to a certain schedule of payment, it brings
11:10discipline in you, irrespective of where the markets are, whether the markets are at high,
11:15whether they are flattish, or whether they are low, because you are investing every month,
11:20you know, you invest irrespective of the market behavior. And that's exactly what an investor
11:26really needs. Don't get emotional about investments. And over a long term, I would say
11:32horizon kind of tagging it along to your financial goal, you'll be able to achieve it, given the fact
11:38that you are not driven by the market volatility. And as a result of which, you know, your
11:44purchase average purchase price will kind of, you know, be definitely better than you know,
11:50if you are just investing lump sum at any point of time, depending again on the market situation.
11:55So I think dollar cost averaging is great. And it helps you to accumulate wealth over a given
12:00period of time, you don't have this fear of missing out. Okay, and that's exactly what it
12:07brings on the table. Brilliant, you use very beautiful analyses here in the sense of how
12:12it averages out the price. And it takes out the emotion out of the investment, which I think is
12:16very important. Of course, we all need to go to our investment advisors, and we should not
12:21dabble into investments on our own. But if we talk about the long term plans for Franklin Templeton,
12:27what are they adjusted? So Franklin Templeton is known for kind of entering markets much before
12:33our competitors and staying there for long. We entered UAE in the year 2000. So this is literally
12:39we're going to complete 24 years by, you know, the fourth quarter of this year. So I have only
12:45seen Franklin Templeton kind of committing more and more resources to the region, and in particular,
12:50the UAE. You know, I would say, let me kind of get back to the year when I moved from the India
12:57office to Dubai, that was the year 2011. And that's exactly the year when we acquired a local
13:02asset management company, which was called Algebra Capital, which brought in investment
13:07management expertise on the table. And since then, you know, we've expanded as a team,
13:12we've kind of ensured that all the key functions that are kind of required to run an asset
13:17management business are locally, you know, kind of there rather than kind of getting the support
13:23from the global office. Yes, there is support and that is it's very much required. But the key,
13:28I would say, building blocks to run a business are all managed out of the local office.
13:34And our long term vision, yes, we are here for the long term, we want to kind of launch timely
13:38solutions for our clients. And that's exactly why you're seeing that Franklin Templeton has taken
13:43the pole position by kind of setting up its own feeder or local funds, not relying on any other
13:49platform to do so, and has shown the commitment that we want to handhold not only, you know,
13:55our advisors, but also the investors at the right time. So that, you know, there is not a big gap
14:01in terms of what the market regulator wants out of you and what the asset manager provides.
14:06We've expanded our footprint in the region by recently opening up an office in Saudi,
14:12and we have kind of more plans to kind of execute our strategies and expand in the region.
14:20So what are the investment trends that we can see in the next few years?
14:24In the next few years, some of the big trends that we will see is the need for private market
14:29strategies. Private market is a very important asset class. So what we usually talk about are
14:36public market strategies, which are the long only strategies. But private market basically
14:41means that investing in infrastructure related securities, investing in, you know, hedge funds,
14:47investing in private credit, investing in private equities. And these are quite different,
14:52they are called private market because these are not in the listed space. So we definitely see,
14:58you know, the banks and the advisors kind of allocating more and more money to private
15:02market strategies. Digital AI transformation, blockchain, investing through apps, you know,
15:08the new generation, they don't want to talk to you. They want to do everything digitally. So
15:14obviously you'll see a significant change there coming through. Income continues to be an important
15:20part of an investor's portfolio, be it through, you know, kind of diversified strategies like
15:26multi-asset or investing in fixed income securities or funds. Because, you know, after 15
15:32years, we've seen the rates coming back to where they are today. So these are, I would say, three
15:37important trends that I foresee. And obviously, with the growth in the region, we also believe
15:45that, you know, UAE and investing broadly in the MENA region will also come as a very important
15:52trend because today not a lot of investors or asset allocators are looking at the region.
15:58But with the kind of growth that we are seeing and the significant importance of the region,
16:01this will change over a period of time. Keeping in mind the regulatory changes that have happened,
16:05how is Franklin Templeton working and what are the kind of funds that we can see in the market?
16:10So on the 29th of July, we've launched seven funds. What we've done is we've thought a lot
16:16through it. We have launched two set of funds, five funds on the conventional side and two for
16:22our Islamic investors. And we've tried to address it by kind of catering to the key needs of an
16:30investor. So the funds that we've launched addresses, you know, I would say global themes,
16:36global equity strategies, global fixed income strategies, multi-asset strategies,
16:40regional strategies and Islamic funds as well. So we've thought through and we've kind of
16:46ensured that, you know, most of the investor categories are well covered.
16:49That sounds great. I mean, it shows the commitment that the company has in the region and I hope a
16:54lot of people benefit out of this podcast and they get on to their investment journey if they
16:59haven't really started yet. Thank you so much, Mr. Mehta for all your time.
17:03Thank you, Sunidhi. Much appreciated.