Heraymila CEO sees good post-war growth prospects

Sanjeevi Jayasuriya

The growth prospects of the post-war Sri Lanka needs to be harnessed both by the local and foreign investors. Heraymila Securities Chief Executive Officer Ravi Abeysuriya told 'Daily News Business' that the investors have the opportunity of securing higher returns through a growth fund.

Heraymila offers foreign and local investors an opportunity to benefit from the post-war growth prospects of Sri Lanka, he said.

Excerpts of the interview.

Q: How confident are you in the growth prospects of Sri Lanka?

A: Sri Lanka has emerged from a three decade long war and is poised for aggressive growth in the next decade. Further, Sri Lanka has achieved a GDP growth rate of 8.3% for 2011 and is expected to record a GDP growth rate of 8.0% in 2012; economic fundamentals are now on track; key sectors such as construction, manufacturing, retail, tourism and financial services are poised to benefit from post war investment, infrastructure development, higher disposable incomes, and better destination ratings.

Q: The Sri Lankan stock market has been declining recently. Why should someone participate in a fund that will invest in the stock market at this time?

A: The Sri Lankan share market grew 125% year-on-year to be the world's best performing market in 2009 and surged 96% year-on-year to be the Asia's best performing market and was the World's second best performing market in 2010. The performance of the market in 2009 and 2010 was as a result of the high optimism and post war growth expectation that took place after Sri Lanka's three decade long war that ended in 2009. We also saw a large number of new domestic retail investors enter the market for the first time. The Sri Lankan share market saw huge demand for shares fuelled by borrowed money which drove prices of shares above actual fundamental valuation of companies. We are seeing a market correction now. What was a relatively expensive market is now seeing a correction making share market investments attractive once again. The launch of the fund is therefore timely and well positioned to take advantage of the post war expansion taking place in Sri Lanka.

Q: Being a fund that will invest primarily in the stock market, will you be fully invested in shares immediately?

A: The Sri Lanka-Heraymila Growth Fund is a fund that intends to give investors a long term return by investing in a well-diversified portfolio of listed shares. Therefore, the long term asset allocation (strategic asset allocation) will be to invest 90% of the fund in listed shares and the balance 10% to be in fixed income securities including cash which is required for possible redemptions by unit holders of the fund.

Q: How long does a person have to invest in the fund?

A: The fund is a growth fund which will be invested in shares. Shares are generally long term investments. However, over a longer period of time the potential return from shares can be much greater than the return from low risk income bearing securities and so an equity unit trust fund also has the potential to give investors a greater return over the longer term. Therefore, in order to reap the real benefits from investing in equity securities, I would advise investors to look at a time horizon of 3-5 years in the fund.

Q: Will the investments be safe?

A: The unit trust model works in such a manner that the fund's assets are held by a custodian bank which is generally not connected to the fund management company. In this case the custodian bank is Deutsche Bank, which will hold all the securities of the fund with them on behalf of the unit holders of the fund. The unit holders are the owners of the fund's assets. Furthermore, a trustee is appointed by the fund managers, which is also Deutsche Bank in this case, who will monitor the activities of the fund managers and in general act in the best interest of the unit holders. The fund manager will only manage the monies in the fund for the unit holders.

Q: Will a person get a guaranteed return on their investment in the fund? How much of a return can I expect from the fund?

A: The fund, like many unit trust funds do not guarantee a return. However, the objective of an equity fund is to give investors a return closer to the share market returns. Although past performance does not guarantee future performance or returns, the fund can expect to give a return in line with share market returns and above Treasury bill returns. The All Share Price Index of the CSE has given an annual return of 25.6% for the ten year period from 2002-2011 (inclusive) while the 12 month Treasury bill has yielded an annual return of 11.25% in that same period. The share market return given above includes the two exceptional post war years of 2009 and 2010. If you exclude these two years, the share market has given an annual return of 15.06% for the period from 2002-May 2009 and the 12 month treasury bill has given a return of 12.48% for that same period.

Q: What experience does the Heraymila fund manager's have?

A: Heraymila Investments Limited (HIL) the holding company of the fund manager, Heraymila Capital (Private) Limited is a company registered in the Dubai International Financial Centre (DIFC), and currently manages approximately 300 million US dollars in assets, worldwide. HIL is the holding company for the Al Mashal family's offshore investments. One of the larger family offices in Saudi Arabia, Al Mashal has substantial stakes in major regional companies and across international assets. Investors will benefit from HIL's risk management processes, investment processes and vast experience in investing in other similar markets.

Furthermore, Heraymila Capital (Private) Limited as the fund manager has employed portfolio managers with substantial experience in managing similar unit trust funds in Sri Lanka.