Daman’s (Dismal) Investments

We decided to examine one of the UAE’s longest running local investment houses to see how the “old guard” do things.

The UAE Central Bank lists a total of 25 investment companies licensed to operate onshore in the UAE. Of these, Daman Investments is 13th on the list, founded in 1998 by Mr. Shehab Gargash, a US-educated Emirati from Dubai with an undergraduate degree and MBA from George Washington University.

Per the Daman Investments website, the firm operates four lines of business,

1. Brokerage
2. Asset Management
3. Development Capital
4. Corporate Finance.

Our observations follow.

Brokerage

This is a commoditized and low-margin business to be in. When markets are up trading volumes pick up, and after a fall it’s usually the opposite. Barriers to entry are low and as a result, competition is high. The Dubai Financial Market (DFM) website shows 48 securities brokers licensed to trade on the exchange. The market is hugely fragmented with the largest broker accounting for just 10% of total volumes on the DFM.

DFM ranks its brokers every month. Daman’s brokerage arm, Al Daman Securities, sits around halfway down the list in terms of value traded over 2017, with less than 2% total market share.

Asset Management

Asset Management is notoriously difficult to do well yet simple to evaluate, as track records are usually published for all to see.

Daman lists several funds on its website, of which the below are currently active.

1. Daman Islamic Fund (-52.31% since inception June 2007)
2. Daman Second Emirates Fund (-32.59% since inception April 2007)
3. Daman Speculator Fund (-50.07% since inception August 2008)
4. Daman Fifth Fund (+476.46% since inception April 2010)

(Performance up to September 2017)

The first 3 funds have around 10 year track records and have been dreadful investments for anyone who invested on day one. The miraculous performance of the Daman Fifth Fund is worth digging into.

That 476% return was nearly all made in the first 7 months of 2014, mostly from Arabtec. The main portfolio manager left the fund and the firm at the end of 2015. Performance since his departure has been a less than impressive -10%. Also worth noting is that the Daman Fifth Fund is very concentrated. Just three stocks usually make up over 50% of the total portfolio – you definitely won’t find diversification here.

Two other funds Al Daman UAE Value Fund and the Iraq Opportunity Fund are listed as “closed funds”, both having been terminated early. The Al Daman UAE Value Fund lasted about 5 years, running up around 500% in the local stock market boom of 2005 before falling 40% in 2006 and closing. The Iraq fund dreamed of rebuilding Iraq back in 2003. It managed to construct a series of villas before also closing after 2.5 years, apparently returning 200% to its investors.

In a future article we’ll discuss the terms of some of these funds, their high fees, (poor) governance structures and their many conflicts of interest. We hoped the MENA asset management industry had cleaned up its act after 2008, evidently not.

Development Capital

For Daman this means Private Equity, Special Funds and Joint Ventures.

Private Equity.

Three investments fall into this category. The first, Buildan Development Limited, was established in 2006 as a real estate development and investment company focused on Jebel Ali Airport City (now known as Al Maktoum International or DWC). Its website doesn’t work. UAE businessman Mr. Abdul Majeed Al Fahim has listed himself as Chairman of Buildan Development Limited, implying a significant ownership in the venture (the same guy behind the disastrous Dubai Pearl). A press release from 2008 stated the company had raised $180mn and they “may consider an IPO in a 4-5 year time horizon”. 10 years later, we haven’t seen any news celebrating Buildan’s success, nor an IPO.

Next is Burj Daman, formerly known as The Buildings By Daman. This was a DIFC mixed-use real estate project that raised $100mn from a variety of UHNW investors via Daman Real Estate Capital Partners (RECP). 12 years after its launch in 2005 it still hasn’t returned a single fils to investors but has managed to ruin the DIFC Courts potential for being a “conduit jurisdiction”. According to various court filings, Daman RECP’s assets were invested with related parties including villas that, to the Judge’s alarm, were transferred to third parties related to Daman.

The last is Ward Holdings Limited, an entity registered in the DIFC in 2009 to develop and manage the Rosewood Hotel at the previously mentioned Burj Daman project. 8 years later Dubai still doesn’t have a Rosewood Hotel.

Special Funds

The Daman Middle East Art Fund was established in 2008 with AED 50mn of capital. According to a profile on Art Dubai’s website, Mr. Gargash’s wife, Dr. Lamees Hamdan is the “Fund Curator” of the Daman Middle East Art Fund.

As a self-professed collector of Middle East Art himself, Mr. Gargash’s appointment of his wife to invest people’s money in art presents yet another conflict of interest. As an aside, here is a thoughtful Standford Business School article on the risks of investing in art. Since 2008 we have not seen any updates on the fund’s status.

Joint Ventures

Daman Quattro was a JV between Daman Investments and Concord Energy in 2007. The JV was to “capitalise on growth opportunities in exchange traded oil and refined product futures, options and OTC derivatives on ICE, CME & DME”. Daman claims the JV was successfully exited 8 years later in January 2015 though there’s nothing in the public domain detailing how the JV performed. The only article of interest regarding Concord Energy’s Singaporean owner, Mr. Nasrat Muzayyin, reveals the gentleman was recently subject to an attack by an angry neighbor for cutting her tree.

Corporate Finance

Daman Investments claims to provide deal structuring, equity and debt advisory, M&A advisory and valuation services. The only prominent advisory mandate we’ve seen Daman secure was advising the Gargash family on its 100% acquisition of Gargash Enterprises LLC, the sole distributor of Mercedes Benz in Dubai and the Northern Emirates.

Given the involvement of Mashreq Bank in the transaction and headlines such as these, we presume Mashreq provided the financing. In that case, its unlikely that Mashreq would rely on advice from a related party (Daman Investments) in the transaction for obvious reasons. Making sure to feature in the press release however, gives Daman Investments the appearance of being an integral part of this prestigious deal.

Conclusion

Daman Investments appears to suffer from an acute attention deficit disorder. The firm plows from one idea to the next in an opportunistic yet chaotic manner. We’re yet to identify one business line that has consistently produced healthy returns for investors over the long term.

Furthermore, a cursory look at the fee structures and the governance Daman offers its investors reveal that best practices have never been high on the agenda.

Daman’s most recent venture is in F&B, having raised AED 150mn from investors to roll out a variety of restaurants with a Canadian partner. Tactics for the fund raise included using gimmicky “Owners Club” incentives, such as VIP bookings, discounts and reserved tables to make investors feel special. When investors gave private equity firm TPG $1.5bn of their capital to buy Cirque du Soleil, the merits of the deal unlikely hinged on free tickets.

Never the shy one, Mr. Gargash has relished the media attention offered by his threats to IPO Daman Investments on several occasions in 2009, 2012 and 2015. Its highly unlikely we see one in 2018 either.

Cutting through the incessant PR and self-praise, since inception Mr. Gargash has probably made more money from his investors than for them.

In light of his frequent trips to Las Vegas, to him Daman Investments is perhaps just another casino.