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The Investcorp Newsletter

The Review | April 2015

Investcorp Acquires Dainese

Investcorp Leadership Programme At University of Cambridge Judge Business School Corporate InvestmentsInvestcorp acquires Nobel, Dainese and Pro UnlimitedReal EstateThe acquisition of four residential properties Investcorp Investors’ Conference


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Welcome

A commitment Investcorp made when it was founded was to act as a bridge between the Gulf and

the West. At its core, this commitment is about providing investment opportunities between these two regions, but it has wider implications. We also act as a bridge for innovation and learning; for the development of human capital and the transfer of knowledge; for fostering talent and leadership among the next generation of business leaders in the Gulf.

From our perspective, this is more than just a commitment. It is a privilege.

Earlier last month, we were pleased to host 30 young professional Arab women and men from across the GCC countries at the University of Cambridge Judge Business School for the Investcorp Leadership

Programme. This programme, which was exclusively designed for future Arab leaders, included sessions on the global economic and financial outlook, as well as leadership, compliance, trust, sustainability and innovation management. We were fortunate enough to be able to do all this at a University that has produced more Nobel Prize winners than any other UK institution: 89 laureates.

We believe that the experience was hugely rewarding for both Investcorp and its guests. By attending a course in the academic surroundings of the University of Cambridge, which has the finest reputation for education, learning and research, our talented young Arab professionals could not have been in a more inspirational environment. It is by fostering talent and leadership among the next generation of rising stars in the Gulf that we hope to play our part in supporting the sustainable growth of our dynamic region.

In parallel, as part of our high-touch business model, I would also like to say how pleased I was to see so many of the current generation of investors at our Investors’ Conference in Bahrain in October. We were all there as one family. The event, which was attended by more than 300 investors from across the GCC

countries, alongside the CEOs of our portfolio companies, was marked by the announcement of the PRO Unlimited acquisition. I particularly enjoyed discussing the Conference’s theme of entrepreneurship, a quality that is core to the development of Investcorp as a business as well as its portfolio companies.

Looking at the Firm from a corporate perspective, as well as reporting steady growth at the halfway point of our 2015 fiscal year, we have also continued to be active on the deals front. Recent highlights include investments in one of the most recognized and respected brands in the protective sports gear market, Dainese, as well as Turkey’s leading telematics company, Arvento Mobile Systems. We see real potential for both companies and will apply our experience, capital and operational knowledge to nurture, diversify and grow the businesses over the coming years.

As we approach the final quarter of our year, I know that leadership, innovation and entrepreneurship will continue to be the guiding principles in everything we do at Investcorp.

Mohammed Al-ShroogiPresident, Gulf Business

Contents

Real EstatePage 10-11The acquisition of four residential properties

Investcorp Investors’ ConferencePage 12-13Investcorp Leadership Programme Page 14-15At University of Cambridge Judge Business School

Corporate InvestmentsPage 4-9Summary of Investcorp’s acquisitions

Board Directors Institute Page 16Workshop held in Bahrain

New JoinersPage 17Two new joiners for Investcorp’s Hedge Funds team

Fund Services AwardPage 17Outstanding Achievement Award

Global Macro OutlookPage 18-19by Rebecca Hellerstein


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Letter from Nemir A. Kirdar

Maintaining Momentum

Welcome to the first issue of The Review in 2015. As I reflect on Investcorp’s fiscal

year 2015, I am pleased to see we have maintained our momentum with five corporate investment acquisitions and 29 real estate property acquisitions to date, bringing the total to nine corporate investment deals and 55 real estate property acquisitions since the beginning of fiscal year 2014. Across the business, we have continued to generate a high degree of client interest in our products, as demonstrated by the strength of our placement activity in the Gulf. In spite of volatile markets and difficult economic conditions, Investcorp reported a 5% rise in net income to $45.3 million for the first half of our fiscal year, proving our ability to deliver consistent results for our investors and shareholders.

We fully expect to carry forward this momentum into the months and years ahead. In the Gulf, the firm’s expanding network of regional offices is delivering

positive results as new investors are welcomed into the Investcorp client base and we will build on these achievements. In Europe and the US, meanwhile, we will use our experience and expertise to continue allocating capital to what we believe to be the right investments in the right markets. We will also continue to identify the very best talent to add to our growing team across Corporate Investments, Real Estate and Hedge Funds.

Having the right talent and the right team is critical to Investcorp’s successes. The dedication, commitment and investment expertise of our people are the foundations on which this firm is built. These foundations lie deep and will continue to underpin our achievements.

In the current economic environment, it is hugely important for an investor to have a manager who can filter out the noise and identify the right opportunities. Investcorp has a long

record of investing successfully through various economic cycles. While remaining cautious, we are confident in our investment approach and optimistic about the outlook for the Firm. We continue to seek, identify and secure a steady flow of high-quality investment opportunities while providing the bridge between the Gulf and Western markets on which our clients and shareholders have relied for more than 30 years.

Your continued trust in Investcorp is essential to everything we achieve. As always, I thank you for that trust and wish you all the very best for the rest of the year.

Nemir KirdarExecutive Chairman and CEO


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One of the leading global brands in the protective gear market for motorcycling and other dynamic sports.

Acquisition of

Dainese


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Last November, Investcorp reached an agreement with Lino Dainese to acquire the specialist Italian retailer

Dainese at an enterprise value of €130 million. Mr Dainese will retain a minority stake in the business alongside Investcorp.

Founded in 1972, Dainese is the most recognized and respected brand for safety and quality in the motorcycle and other dynamic sports market. It specializes in providing protective gear for road and racing use alike, as well as for use in winter sports, biking and horse riding.

Through its Dainese Technology Centre (D-Tec), a R&D technical centre for the study of protective technology and the development of innovative products, the Company ensures it remains at the forefront of innovation.

Lino Dainese, founder and President of Dainese, said: “It was hugely important to us to find the right partner in this period of strong development for the company. I believe that Investcorp’s proven track record, global presence and network will support the Company’s continued international expansion and product innovation. I also believe that their support will enable me to refocus on my passion, driving forward technological advances in our product line and, in particular, the D-Air system.”

Mohammed Al-Shroogi, President, Gulf Business, Investcorp, said: “We are honoured to have the trust and confidence of Mr Dainese and to be the custodian of this exceptional business that Mr Dainese has built over 40 years ago. Dainese is an iconic brand with a track record of leadership in a multibillion dollar market. It is exactly the type of company we look to invest in: a founder managed successful business looking for a partner for the next phase of growth. We look forward to working in partnership with the current management team, and Mr Dainese, to consolidate Dainese’s deserved reputation as an innovator and to strive to increase its penetration into new markets.”

Corporate Investments


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At the end of March, Investcorp announced that it has signed a definitive agreement to acquire

Nobel Learning Communities, a leading provider of private preschool through high school education in the US, from Leeds Equity Partners.

Founded in 1984, Nobel Learning operates a network of 176 schools across 18 states with a commitment to outstanding education. The company also has an accredited online private school that offers college preparatory programs to students from over 55 countries worldwide. With approximately 5,000 teachers and staff and 25,000 students, Nobel Learning is one of the

largest private operators in the US.

“Nobel Learning has achieved tremendous progress over the last several years in further developing the quality of our educational product and building a very strong portfolio of on-ground and online schools. We believe that we are well-positioned to capitalize on the opportunities within the private education market in the US.” said George Bernstein, President and Chief Executive Officer of Nobel Learning. “We are extremely pleased to partner with Investcorp, which can support our expansion with operational resources, real estate expertise, and access to their global network. We look forward

to benefitting from their experience in accelerating the growth of their portfolio companies as we continue to invest in our curriculum, our on-ground and online school platforms and the professional development of our staff.”

“We are excited to partner with Nobel Learning’s exceptional management team to further expand this high-quality private education platform,” said Maud Brown, Managing Director at Investcorp. “Nobel Learning aligns perfectly with Investcorp’s strategy of investing in leading businesses that operate in fragmented, growing, and defensive markets. We look forward to utilizing our expertise to support the company’s next stage of growth through strategic add-on acquisitions and continued investments in its educational product.”

Nobel Learning is the only scaled and diversified provider of preschool through grade 12 private education in the US. The company provides high-quality private education through small class sizes, employs qualified teachers and meets students’ individual learning styles through personalized learning plans. Nobel Learning also offers an array of supplemental educational services, including before- and after-school programs, a summer program and learning support programs. The company operates as a network of multi-branded local schools with a centralized team of educators that provide training and support as well as establish a proprietary research- and standards-based curriculum enabling the schools to focus on the needs of individual students, families and local communities.


Investcorp Acquires Nobel Learning CommunitiesA leading provider of private education in the US


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Corporate InvestmentsCorporate Investments

Leejam, which operates under the Fitness Time brand, was awarded the Mohammed Bin Rashed

Sports Creativity Award after having opened the 100th Fitness Time center. To celebrate the achievement and the award, Leejam organized an event on February 11th 2015 at the Four Seasons Hotel in Riyadh. Held in the presence of H.E. Dr. Ahmad Al Senani, the Undersecretary of the General President of Youth Welfare, it was attended by over 150 guests,

including a number of Investcorp clients in Riyadh.

The event began with a presentation on Fitness Time and its brand values, followed by a video of member successes. 10 Fitness Time members and 17 staff were then honored as part of Fitness Time’s loyalty program. The 10 best Fitness Time centers were also celebrated.

Fitness Time celebrates opening of its 100th center

Theeb Rent a Car opens seven new branches in Saudi Arabia

As part of its expansion plan for Saudi Arabia, Theeb Rent a Car recently announced the opening

of seven new branches in airports across the Kingdom - Yanbu, Tabuk, Ha’il, Al-Qassim, Al-Jawf, Arar and Jizan. With existing branches in Jeddah, Dammam,

Al Madina, Al Munawara, Abha, Al Bahah, Jizan and Al Taif, the new openings bring the number of Theeb airport branches to 15. The new outlets will help bring Theeb Rent a Car’s superior services to even more customers across the Kingdom.


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In October 2014, Investcorp and Mumtalakat announced the acquisition of PRO Unlimited, a

leading provider of software and services that enable large enterprises to more effectively manage their contingent workforce. Terms of the transaction were not disclosed.

Founded in 1991, PRO Unlimited delivers a full range of services to address procurement, management and compliance issues related to contingent workers, including independent contractors, consultants, temps and freelancers. PRO operates in 52 countries and provides services to some of the world’s largest and most prestigious companies through its

integrated, vendor-neutral software and services platform.

Commenting on the acquisition, Andrew Schultz, PRO Unlimited’s co-founder and Chief Executive Officer said: “We are pleased to have reached this agreement, which will allow us to expand our best-in-class software and services solutions. Our new partner’s strategic and financial support will deliver substantial benefits to our customers, employees and all of our stakeholders. We look forward to continuing to provide customers with superior technical solutions and unparalleled service levels while working with our investors to expand internationally, creating greater opportunities for our employees and our business.”

Headquartered in Boca Raton, Florida, PRO Unlimited has approximately 600 employees and provides an integrated, purely vendor-neutral platform to manage its customers’ contingent workforce spend. PRO’s solutions help clients reduce costs, mitigate risks and address numerous other critical issues.

Mohammed Al-Shroogi, President, Gulf

Business, Investcorp, said, “Over the past few decades, changing workforce dynamics have shifted the use of contingent workers from purely tactical to strategic in nature, particularly for high-end knowledge workers. PRO Unlimited is an industry pioneer that offers its clients a best-in-class Managed Services Program tightly coupled with its proprietary Vendor Management Software platform ‘WAND’. PRO’s integrated approach provides a higher level of insight and customer service to its blue-chip customer base, which includes several of the Global 1,000 companies. We look forward to partnering with Andrew Schultz and the entire PRO Unlimited management team as they continue to grow their client base, increase the breadth and depth of their services and expand their international presence.”


Investcorp and Mumtalakat acquire PRO Unlimited


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Georg Jensen, the Danish design house, participated in Baselworld, the prestigious

Watch and Jewellery Show, on 19th March 2015 after a five-year absence, as part of its strategic brand and retail redeployment. The company unveiled a revitalised Watch and Jewellery collection with a focus on the high-end, in line with a fresh product strategy developed by the new management team.

The watch offering has been revitalised and a brand new production line put in place to deliver a Swiss Made timepiece. Meanwhile, the premium-end and gold jewellery lines have been the subject of renewed focus, including a new emerald and ruby collection in partnership with Gemfields, the world’s leading producer of ethically-sourced rare coloured

gemstones. Collaborations with renowned industrial designer Marc Newson CBE and acclaimed jewellery designer Jordan Askill will contribute to re-establishing the brand under a unified and design-driven global vision.

This comes as Georg Jensen is increasing its presence in key markets, with new store openings in London, Munich and Beijing.

Georg Jensen, the Danish Royal Warrant holder which celebrated its 110th Anniversary last year, was acquired by Investcorp in November 2012, with David Chu taking the helm as the Chief Executive and Chief Creative Officer in early 2013.

Georg Jensen returns to Baselworld and announces new store openings in Europe and Asia

L’azurde pays dividend of $16.7 million for 2014

L’azurde, one of the world’s top five gold jewellery manufacturers, distributed $16.7

million in dividends to its shareholders, following a strong performance in 2014.

The Investcorp Gulf Opportunity Fund acquired a majority stake in L’azurde in 2009 alongside Eastgate Capital and The National Investor, its consortium partners. After the gold price shock in 2010, a new strategy for the business was developed with the objectives of strengthening its operations and

ensuring it was positioned to maximise its growth potential, while insulating itself from difficult market conditions and gold price volatility. Since that time, L’azurde has been steadily increasing its earnings, achieving double digit year-on-year growth.

Mohammed Al-Shroogi, President, Gulf Business, Investcorp, said: “Our clear performance improvement strategy for L’azurde has reorganised and repositioned the Company. We have enhanced its market positioning, increased its competitiveness and

strengthened its balance sheet. This strategy has improved L’azurde’s financial performance steadily over each of the last five years. Today the Company is highly profitable and this has allowed the Board to declare and distribute a dividend to shareholders of $16.7 million for 2014.”


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Recently, Investcorp announced the acquisition of a portfolio of residential

properties in the metropolitan areas of Washington, D.C., Orlando, San Diego and Baltimore through its US-based real estate arm and for approximately $300 million.

The four properties acquired total more than 2.1 million square feet with approximately 1,900 multifamily and student housing units. The properties currently have high occupancy rates, with a current average occupancy rate of approximately 96%.

The acquisitions came as continuation of a highly active period for Investcorp’s real estate group. Over the last twelve months, Investcorp has purchased properties in the US collectively valued at more than

Investcorp expands real estate portfolio with acquisition of four residential properties for approximately $300 million

Real Estate

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Orion on Orpington, Florida


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$850 million. Since 1996, Investcorp has completed more than 300 property investments totaling more than $11 billion in value.

“We are pleased to enhance our real estate portfolio with the acquisition of these properties, which perfectly align with Investcorp’s strategy of targeting high-quality assets with what we believe to be attractive yields that demonstrate upside potential,” said Yasser Bajsair, Managing Director at Investcorp in the Kingdom of Saudi Arabia. “These properties are highly occupied and have the potential to offer stable cash flows from strong, diverse, and growing markets.”

Investcorp completed these acquisitions in separate transactions and through joint ventures with four different operating partners, each possessing deep knowledge of the local markets as well as operational

expertise in managing the assets. Investcorp maintains controlling interests in all of its real estate investments and regularly partners with established national or regional real estate companies who frequently choose to co-invest alongside the Firm.

Arcadian Silver Spring, Maryland

Fairways at Towson, MarylandWaterleaf Apartments, California

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Real Estate


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Investcorp’s international Investors’ Conference took place last October at the Ritz Carlton Hotel in

Manama.

Mohammed Al-Shroogi, President,

Gulf Business, Investcorp, opened

the conference proceedings and the

Governor of the Central Bank of

Bahrain delivered the keynote speech.

The successful event brought together the

Firm’s key investors, shareholders, CEOs of portfolio companies and its senior executives from around the world.

Entrepreneurship was the central theme of the conference, a quality core to the development of Investcorp’s business and those of its portfolio companies. Peter Hiscocks, CEO, Executive Education, Cambridge Judge Business School, shared his insights on this topic. He is

Investcorp hosted international

Investors’ Conference in Bahrain

Investors’ Conference


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The successful event brought together the Firm’s key investors, shareholders, CEOs of portfolio companies and its senior executives from around the world.

responsible for lecturing innovation management and entrepreneurship at Cambridge Judge Business School and is also a successful, serial entrepreneur himself.

During the course of the two day conference, Investcorp’s senior investment team provided in-depth updates on the Firm’s corporate investment business from a MENA, North American and European perspective, as well as presentations on its Real Estate and Hedge Funds businesses. Similarly, CEOs from Investcorp’s portfolio companies from the US, Europe, MENA and Turkey shared their views on trends and opportunities within their industry segments.

Mohammed Al-Shroogi, President, Gulf Business, Investcorp, said:

“This year’s conference has once again provided our business partners, shareholders and investors with an

invaluable forum to network and share industry knowledge, helping to maintain our Firm’s close links to global investment trends and opportunities.”

“We had a talented line up of speakers scheduled, which provided our guests with invaluable insights into both our business lines and our investment strategies worldwide. Building on this, the presence of senior management from our portfolio companies has also provided our investors and shareholders with real world insights into the work we do and how we build value.”

“Having the Governor of the Central Bank of Bahrain addressing our conference was a great honour; additionally, our guests have undoubtedly benefited from Peter Hiscock’s insights into entrepreneurship as an established teaching authority and practitioner of the subject.”

Investors’ Conference


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Investcorp Leadership Programme

Investcorp announced the successful completion of the Investcorp Leadership Programme, an academic

training course at the University of Cambridge Judge Business School that has been exclusively designed for young Arab professionals and future leaders. This initiative comes as part of Investcorp’s ongoing commitment to further develop human capital in the Gulf by providing a platform to foster knowledge sharing and promote understanding of critical issues influencing the world.

Held between 10th and 13th March 2015,

the Programme was attended by 32 young Arab professionals from across Bahrain, Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, and Oman. They all participated in specially-developed classes at The University of Cambridge Judge Business School, one of the world’s leading academic institutions. The main themes of the Programme were leadership and innovation management, which were featured over the three days.

Mohammed Al-Shroogi, President, Gulf Business, Investcorp, said, “Since its inception, Investcorp has acted as a

bridge between the Gulf and the West. As part of this role, this Leadership Programme provided future Arab leaders with access to a leading academic institution, the University of Cambridge Judge Business School. We see great potential in these young professionals and we are proud to be an enabler for them to enhance their capabilities and contribute to their knowledge and leadership skills.”

The Investcorp Leadership Programme was designed by the Judge Business School, a world-ranking centre of research that provides international leadership in key areas of management studies, to give the participants key insights and learning into leadership, trust, innovation and sustainability. Participants had the opportunity to meet the faculty members and discuss with them the rising business and economic challenges.

The Programme concluded with the final day spent at Investcorp’s London office, where the participants engaged in a learning session with the Corporate Investment Europe team as well as a meeting with Rishi Kapoor, Investcorp’s Chief Financial Officer.

Investcorp Leadership Programme for young Arab professionals at Cambridge University


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“We see great potential in these young professionals and we are proud to be an enabler for them to enhance their capabilities and contribute to their knowledge and leadership skills”

Investcorp Leadership Programme


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In December 2014, GCC Board Directors Institute (‘BDI’) released insights that Board composition and

selection were identified as key priorities in the corporate governance choices faced by GCC businesses, as highlighted during the Institute’s Foundations of Directorship Workshop held in partnership with Investcorp on 7th - 9th Dec 2014 in Bahrain.

Mohammed Al-Shroogi, President, Gulf Business, Investcorp, said “We are delighted once again to work closely with the BDI team. This is the fourth Foundations of Directorship workshop we have hosted to date with the forum representing a valuable knowledge sharing event during which senior board directors from across the GCC

discuss a range of issues and challenges facing them today. By sharing real world experiences and best practice solutions, as a group, we are encouraging the adoption of a strong corporate governance culture across the region. This is of critical importance to both regional and international investors, and in turn, central to delivering superior returns to all stakeholders”.

Nathalie Potvin, Executive Director of BDI said “Built by global experts specifically for the region, BDI is a pioneer in its field, delivering proprietary publications and keynote research reports. The workshops are designed by board members themselves, focused on improving effectiveness and capabilities across the GCC through the sharing of

best practices and experiences. In doing this, BDI has created a unique network of senior board members, professional advisors and executives.”

The workshop held by BDI in Bahrain, was in partnership with Investcorp, a founding member of BDI.

Board composition and selection rank high as key priorities in the corporate governance choices faced by businesses, as highlighted during the GCC Board Directors Institute Workshop held in Bahrain in partnership with Investcorp

Board Directors Institute

Board Directors Institute


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New Joiners & Fund Services Award

Two new joiners for Investcorp’s Hedge Funds team

2015 MENA FM Fund Services Award

Held in Dubai last January, the awards aimed at recognising fund service providers with high

levels of client service and innovative products over the past 12 months. Over 40 companies were entered for the award

across 19 categories. A special distinction award, the ‘Outstanding Achievement Award by an Individual’ was awarded to Nemir Kirdar, our Executive Chairman and CEO. The award was received by Mohammed Al Shroogi, our President

- Gulf Business on behalf of Mr. Kirdar. Also attending from Investcorp were Mohamed Sammakia, Head of Investcorp’s Placement Franchise in the UAE and Firas El Amine, Head of Corporate Communications.

Following the appointment of Lionel Erdely as Head and Chief Investment Officer of our Hedge

Funds business last October, we have further strengthened the Hedge Funds team with two new appointments; Jennifer Cahill as Managing Director, Business Development and Gregory Berman as Principal and Co-Head of Fundamental Strategies

As part of her role in the Business Development team, Ms. Cahill will be responsible for business development of hedge fund solutions focusing on North American institutions.

Commenting on the appointment, Mr. Erdely said: “We are very pleased to welcome Jennifer to Investcorp. We have strong plans to further develop products, launch new innovative offerings for our clients, and significantly grow our platform. Jennifer, with her solid experience is a high-caliber addition to the team and will play a key role in our efforts.”

Ms. Cahill joins Investcorp with over 11 years of industry experience. Before joining the firm, Ms. Cahill served as the Chief Marketing Officer at Atlantic Investment Management. Prior to joining Atlantic, she was a Managing Director and Partner at Protégé Partners, where she was responsible for fundraising and strategy for their Fund of Funds

and direct Hedge Fund. Previously, she also served as a Marketing Associate at Pequot Capital and as an Associate at Goldman Sachs and Co. Ms. Cahill had a successful start to her career at General Electric where she spent six years. She holds a BSc in Industrial and Systems Engineering from the University of Florida and an MBA in Finance and Entrepreneur Management from The Wharton School of the University of Pennsylvania.

Mr. Berman will be responsible for developing and managing Investcorp’s Equity, Credit and Event Driven investments, and will co-head these strategies with Elena Ranguelova. Mr. Berman will be a member of the Hedge Funds Strategic Outlook and Investment Committees and will report directly to Mr. Erdely.

Commenting on the hire, Mr. Lionel Erdely said: “We are very pleased to welcome Greg to Investcorp. Greg’s deep experience and expertise in credit and equities will be instrumental to the performance of our institutional customized portfolios, and our growth initiatives in seeding and co-investments.”

Mr. Berman joins Investcorp with over 15 years of industry experience. Before joining Investcorp, Mr. Berman served as the Director and Head of Credit

Hedge Fund Strategies at Lyxor Asset Management since 2012. Prior to joining Lyxor, he was responsible for hedge funds selection across credit, event and equity strategies at Allianz Alternative Management. Prior to joining Allianz, Mr. Berman was an Associate Director at Bear Stearns where he structured and marketed CDO’s and other structured funds. Mr. Berman holds a BA from the University of Pennsylvania and an MBA from Columbia University. He is also a CFA charter holder.

Gregory Berman

Jennifer Cahill


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Green shoots: We have expected global growth to accelerate above trend this year, led by

an increasingly dynamic US economy. Recent data releases out of Japan and Europe confirm that growth is broadening out across major developed markets. Japan’s real GDP growth is on track to exceed potential this year as export volumes finally pick up while consumption remains resilient. While the economy still faces major challenges, most notably inflation in a slump near 0% following declines in energy prices, the outlook has improved considerably over the past few months. The Euro Area is exhibiting similar signs of green shoots from low oil prices, a weaker euro, and a supportive ECB. While most economists anticipate only a slight acceleration in the Euro Area’s growth over 2015, recent data releases have persistently surprised on the upside, with the Citigroup Euro Area Economic Surprise Index hitting a new high in early March. The Euro Area’s manufacturing PMIs rose broadly

in February, with Spain remaining firmly in positive territory while Italy saw a striking bounce, with a similar pattern in the services PMIs. Only the French economy remains stagnant for now.

Oil: More to come Recent dramatic moves in oil prices have generated concerns amongst investors, the most pressing being will prices rebound, or are sub-$60 prices the new normal, and what are the macro implications?

Our view is that the decline in oil prices reflects an industry shakeout that will persist through at least the first half of 2015. Prices should continue to overshoot fair value through year’s end as OPEC refrains from cutting production despite the rapidly growing supply from US and Canadian shale producers. As this shakeout matures and North American producers exit, oil should return to $70-80 barrel by 2016. That said, shale oil accounts for 4 million out of the 93 million barrels of oil supplied globally each day. As the main US shale fields (Bakken, Eagle Ford, and Permian) have breakeven prices below $60 the level of global oil production will not fall substantially until oil prices remain at or below $50 for six months.

What are the macro implications? In general, an oil price decline increases global real incomes and consumption and reduces inflation. The IMF estimates that global growth in 2015 will be roughly half a percentage point higher

than it would have been without the drop in oil prices. Growth will also be reallocated across countries as a result. Oil importers like the US will benefit from lower current account deficits, higher disposable income, and lower input costs, while oil exporters will take in less revenue so their government budgets and external balances will come under pressure.

Over the past month there appears to have been consolidation of oil around 45-55 $/bbl (WTI) which has coincided with an increase in US stocks of crude oil and a relative flattening of the futures curve. While some are drawing an analogue to the oil market recovery of 2009 we don’t think this is a valid comparison. The scalable and dynamic nature of new shale oil sources, the recent strengthening of the US Dollar, and the large amount of oil already in storage are generating very different market dynamics than in 2009. If oil continues to be diverted into ever-more-expensive methods of storage, the curve will have to steepen even further to reflect the increased storage costs.

Turkey: The big winners from recent oil price declines are EM oil importers with large current account deficits such as Hungary and Turkey. Economists generally expected Turkey’s growth to slow this year as consumption responded with a lag to higher interest rates, a weaker lira, and tighter financial conditions. Its growth and inflation

Rebecca Hellerstein

Global Macro Outlook by Rebecca Hellerstein

Global macro outlook


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OPEC Tests Frackers

releases have outperformed expectations, benefiting from the surprising declines in oil prices. As a result, the Central Bank of Turkey was able to lower its policy rate by 25 bps to 7.50% on February 24th along with other major lending rates, taking advantage of the wiggle room provided by a lower-than-expected January inflation print.

Greece: We remain relatively sanguine on the outlook for Greece. Following negotiations between Greece and the Eurogroup, the bailout program which

was to end on February 28th has been extended for four months and the emergency liquidity assistance limit (ELA) has been raised to €3.3 billion, much lower than the €8-10 billion requested by the Greek government. Deposit outflows have been rising significantly, leaving the Greek banks approximately eight weeks before they run out of collateral and reducing the government’s bargaining leverage, which we believe will help to bring about a deal sooner rather than later. In addition, Greece’s creditors are primarily the ECB,

the IMF, and Germany, so even in the worst-case-scenario of a sovereign default (which we see as very unlikely), contagion to other peripheral European countries should be minimal. The institutional backstops in place now, as opposed to in 2011/12, including the ECB’s QE program, have radically reduced the risks of contagion across euro area banking systems and financial markets.

Global Macro Outlook by Rebecca Hellerstein

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INVESTCORP BANK B.S.C.Investcorp HouseP.O. Box 5340ManamaKingdom of BahrainTelephone: +973 17 532 000Facsimile: +973 17 530 816

INVESTCORP INTERNATIONAL LTD.Investcorp House48 Grosvenor Street London W1K 3HW United KingdomTelephone: +44 (0)20 7629 6600Facsimile: +44 (0)20 7499 0371

INVESTCORP INTERNATIONAL INC.280 Park AvenueNew York, NY 10017United States of AmericaTelephone: +1 212 599 4700Facsimile: +1 212 983 7073

INVESTCORP SAUDI ARABIA FINANCIAL INVESTMENTS CO.Al Faisaliah Tower, 29th FloorP.O. Box 61992, Riyadh 11575Kingdom of Saudi ArabiaTelephone: +966 11 484 7600Facsimile: +966 11 273 0771

INVESTCORP BANK B.S.C. - ABU DHABI Al Sila Tower, 8th floor, Sowwah Square Al Maryah Island, P.O. Box 36961Abu Dhabi, United Arab EmiratesTelephone:+971 2 501 8900Facsimile: +971 2 644 1566

www.investcorp.com

INVESTCORP BANK B.S.C.Investcorp HouseP.O. Box 5340ManamaKingdom of BahrainTelephone: +973 17 532 [email protected]

INVESTCORP INTERNATIONAL LTD.Investcorp House48 Grosvenor Street London W1K 3HW United KingdomTelephone: +44 020 7629 [email protected]

INVESTCORP INTERNATIONAL INC.280 Park AvenueNew York, NY 10017United States of AmericaTelephone: +1 212 599 [email protected]

INVESTCORP SAUDI ARABIA FINANCIAL INVESTMENTS CO.Al Faisaliah Tower, 29th FloorP.O. Box 61992, Riyadh 11575Kingdom of Saudi ArabiaTelephone: +966 11 484 [email protected]

INVESTCORP BANK B.S.C. - ABU DHABI Al Sila Tower, 8th floor, Sowwah Square Al Maryah Island, P.O. Box 36961Abu Dhabi, United Arab EmiratesTelephone:+971 2 501 [email protected]

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Investcorp Acquires Dainese - Investcorp - Investcorp · we have continued to generate a high...

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