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A question and answer session with Ali Jahangir Siddiqui, Managing Partner JS Private Equity. He is son of Jahangir Siddiqui, founder of JS Group.
How have you built and maintained relationships with global organizations like Allianz, Global Investment House and IFC? What do partnerships like these add to the business?
We have built businesses on our own as well as in partnership. We seek partnerships in areas where our expertise is limited so essentially, we partner with companies that are more skilled than we are in a particular area. Our contribution is significant on-ground infrastructure with local expertise and the ability to execute complex projects with precision. This works well because each partner contributes to the success of the business.
The advantage then is that we can capture opportunities much faster and enter sectors where our own knowledge is limited.
While in many countries international houses buy local financial groups, JS has taken over foreign enterprises, such as Citicorp Investment Bank and American Express Bank's Pakistan operations. What does this combination of multinational owned businesses, joint ventures with global leaders and local expertise create?
We purchase businesses that are value accretive not only financially but also in terms of expertise. The mix of joint ventures, organically built companies and acquired companies adds value to the entire group and all the companies can learn from each other.
The great challenge for us is to manage a number of diverse cultures we acquire as we purchase businesses. As an example in 2006, we purchased a large state-owned chemicals company as well as American Express Bank's domestic branches. We inherited two very different groups of people and we have paid careful attention to their needs and culture as we integrate them into our broader organization.
It's an interesting time for asset management in Pakistan, with assets under management growing dramatically but challenges, too such as the reversion of institutional money to the National Savings Scheme. How is JS Abamco placed and what are the opportunities?
JS Abamco has been a star in our portfolio for a number of years. It continues to lead the sector in terms of performance.
We believe that there will be huge growth in asset management but are concerned that due to the large number of new managers combined with single-minded focus on performance, the sector is not paying enough attention to risk management. Of course, this will be self-correcting and assets will flow from funds with poor risk management to those with strong risk management. In the process, the better managers and fund distributors will thrive.
JS Abamco sees opportunity in a number of new products and innovations. For example, JS Abamco recently launched Pakistan's first capital protected fund in partnership with Standard Chartered Bank.
What is penetration like for the insurance industry in Pakistan and how are JS Group's insurance businesses placed?
Our insurance investment, EFU continues to be the largest insurance group in Pakistan. 2006 is a notable year for us as we have not only grown 30 percent to just over US$200 million in premiums, but also become number one in general insurance where we have been steadily gaining market share for the last five years. Our joint venture with Allianz in health insurance continues to be a growth engine.
However, we are still operating on a relatively small customer base and penetration is low. The industry has to work hard to educate the mass population.
It is sometimes said that infrastructure and energy are the two key areas Pakistan must address to grow sustainably. As an investor in port infrastructure and an oil and gas business, what do you think about development in this sector?
Pakistan is an energy importer and that dependency is growing. The government recognizes this and is working to encourage domestic energy exploration and development, altering the consumption mix so we are less dependent on imported oil and making the processing chain more efficient. But this can't be done overnight so we have to be patient.
Within infrastructure, there has been much development in recent years but there is still much to do. Port capacity growth is well planned by the various port authorities. Power remains an area of concern but again the government is working towards solving this issue. Road and rail infrastructure needs development in many parts of the country. In the short term, if infrastructure development does not keep pace or the energy deficit continues to grow, it will slow the economy down.
Aviation is arguably the most cut-throat business of all, but you have launched commercial services with Airblue with ambitious fleet expansion plans. Why?
We believe that from a structural perspective, both, globally and in Pakistan, aviation in Pakistan is a great sector. It is true that few major airlines have been consistently profitable but we believe Airblue has a strong and successful operating model.
On the macro level, transportation and logistics will undergo significant growth in Pakistan. Over the next five years, we see growth in aviation in Pakistan being similar to growth in telecommunications over the last three years. In one sense, aviation is the new telecom. But there are some differences, of course, as aviation will be even more competitive than telecom.
On a micro level, aviation is a business with massive operating and financial leverage. As a result, it is possible to make or lose a large amount of money very quickly, depending on demand and operational efficiency. As long as GDP growth continues and oil prices and interest rates don’t undergo any shock increases Airblue should do well.
In the current year, we should post sales of US$110 million and expect to double sales next year based on routes already planned. Airblue's operating margins are similar to other 'new-generation' airlines such as Gol in Brazil and Jet Airways in India.
You have recently converted the operating structure of JS Group from a conglomerate to a private equity fund. Tell us more about what this means for how you run your business?
I was recently in a meeting with a hedge fund manager who looked at JS Group's investments into financial services businesses, private equity, the securities markets and real estate and told me that we look like a multistrategy hedge fund. His point was that conglomerates, private equity organizations and even hedge funds have begun to look similar.
Many conglomerates struggle to find an appropriate operating structure. We had a private equity bias in JS Group as a number of senior executives are from the private equity industry.
It was natural for us, therefore, to look at our businesses as a portfolio of investments with the goal of building great growth companies. The most efficient structure to operate in was that of a private equity organization. We now look at our existing companies as a portfolio of growing companies. Then, we launched Pakistan's first private equity fund earlier this year with JS Group as a major investor but our track record attracted a number of other investors including IFC, DCD, Samba Financial Group and Global Investment House. Our investing activities will now be carried out through this and future funds and JS Group will participate as an investor. This completes our transition from a conglomerate into a private equity fund management group.
How do you measure your success?
Job creation. Of course, like any commercial organization, we care about profits and we are one of the most profitable businesses in Pakistan. But we closely watch the number of net new jobs we add which is only possible if we run successful and profitable businesses. Profit is our goal, but job creation is a better measure.
This also explains why JS Group has supported so many greenfield projects in the past, as they are developmental and create jobs. We strive to be a conduit for wealth creation for other people.
Source: Institutional Investor
How have you built and maintained relationships with global organizations like Allianz, Global Investment House and IFC? What do partnerships like these add to the business?
We have built businesses on our own as well as in partnership. We seek partnerships in areas where our expertise is limited so essentially, we partner with companies that are more skilled than we are in a particular area. Our contribution is significant on-ground infrastructure with local expertise and the ability to execute complex projects with precision. This works well because each partner contributes to the success of the business.
The advantage then is that we can capture opportunities much faster and enter sectors where our own knowledge is limited.
While in many countries international houses buy local financial groups, JS has taken over foreign enterprises, such as Citicorp Investment Bank and American Express Bank's Pakistan operations. What does this combination of multinational owned businesses, joint ventures with global leaders and local expertise create?
We purchase businesses that are value accretive not only financially but also in terms of expertise. The mix of joint ventures, organically built companies and acquired companies adds value to the entire group and all the companies can learn from each other.
The great challenge for us is to manage a number of diverse cultures we acquire as we purchase businesses. As an example in 2006, we purchased a large state-owned chemicals company as well as American Express Bank's domestic branches. We inherited two very different groups of people and we have paid careful attention to their needs and culture as we integrate them into our broader organization.
It's an interesting time for asset management in Pakistan, with assets under management growing dramatically but challenges, too such as the reversion of institutional money to the National Savings Scheme. How is JS Abamco placed and what are the opportunities?
JS Abamco has been a star in our portfolio for a number of years. It continues to lead the sector in terms of performance.
We believe that there will be huge growth in asset management but are concerned that due to the large number of new managers combined with single-minded focus on performance, the sector is not paying enough attention to risk management. Of course, this will be self-correcting and assets will flow from funds with poor risk management to those with strong risk management. In the process, the better managers and fund distributors will thrive.
JS Abamco sees opportunity in a number of new products and innovations. For example, JS Abamco recently launched Pakistan's first capital protected fund in partnership with Standard Chartered Bank.
What is penetration like for the insurance industry in Pakistan and how are JS Group's insurance businesses placed?
Our insurance investment, EFU continues to be the largest insurance group in Pakistan. 2006 is a notable year for us as we have not only grown 30 percent to just over US$200 million in premiums, but also become number one in general insurance where we have been steadily gaining market share for the last five years. Our joint venture with Allianz in health insurance continues to be a growth engine.
However, we are still operating on a relatively small customer base and penetration is low. The industry has to work hard to educate the mass population.
It is sometimes said that infrastructure and energy are the two key areas Pakistan must address to grow sustainably. As an investor in port infrastructure and an oil and gas business, what do you think about development in this sector?
Pakistan is an energy importer and that dependency is growing. The government recognizes this and is working to encourage domestic energy exploration and development, altering the consumption mix so we are less dependent on imported oil and making the processing chain more efficient. But this can't be done overnight so we have to be patient.
Within infrastructure, there has been much development in recent years but there is still much to do. Port capacity growth is well planned by the various port authorities. Power remains an area of concern but again the government is working towards solving this issue. Road and rail infrastructure needs development in many parts of the country. In the short term, if infrastructure development does not keep pace or the energy deficit continues to grow, it will slow the economy down.
Aviation is arguably the most cut-throat business of all, but you have launched commercial services with Airblue with ambitious fleet expansion plans. Why?
We believe that from a structural perspective, both, globally and in Pakistan, aviation in Pakistan is a great sector. It is true that few major airlines have been consistently profitable but we believe Airblue has a strong and successful operating model.
On the macro level, transportation and logistics will undergo significant growth in Pakistan. Over the next five years, we see growth in aviation in Pakistan being similar to growth in telecommunications over the last three years. In one sense, aviation is the new telecom. But there are some differences, of course, as aviation will be even more competitive than telecom.
On a micro level, aviation is a business with massive operating and financial leverage. As a result, it is possible to make or lose a large amount of money very quickly, depending on demand and operational efficiency. As long as GDP growth continues and oil prices and interest rates don’t undergo any shock increases Airblue should do well.
In the current year, we should post sales of US$110 million and expect to double sales next year based on routes already planned. Airblue's operating margins are similar to other 'new-generation' airlines such as Gol in Brazil and Jet Airways in India.
You have recently converted the operating structure of JS Group from a conglomerate to a private equity fund. Tell us more about what this means for how you run your business?
I was recently in a meeting with a hedge fund manager who looked at JS Group's investments into financial services businesses, private equity, the securities markets and real estate and told me that we look like a multistrategy hedge fund. His point was that conglomerates, private equity organizations and even hedge funds have begun to look similar.
Many conglomerates struggle to find an appropriate operating structure. We had a private equity bias in JS Group as a number of senior executives are from the private equity industry.
It was natural for us, therefore, to look at our businesses as a portfolio of investments with the goal of building great growth companies. The most efficient structure to operate in was that of a private equity organization. We now look at our existing companies as a portfolio of growing companies. Then, we launched Pakistan's first private equity fund earlier this year with JS Group as a major investor but our track record attracted a number of other investors including IFC, DCD, Samba Financial Group and Global Investment House. Our investing activities will now be carried out through this and future funds and JS Group will participate as an investor. This completes our transition from a conglomerate into a private equity fund management group.
How do you measure your success?
Job creation. Of course, like any commercial organization, we care about profits and we are one of the most profitable businesses in Pakistan. But we closely watch the number of net new jobs we add which is only possible if we run successful and profitable businesses. Profit is our goal, but job creation is a better measure.
This also explains why JS Group has supported so many greenfield projects in the past, as they are developmental and create jobs. We strive to be a conduit for wealth creation for other people.
Source: Institutional Investor