The orange McLaren 720S displayed on the ground floor of the Arcapita building, named after the investment firm, in Bahrain’s Business Bay epitomises the audacious – though sometimes unpopular – strategy of one of its most important tenants, Mumtalakat Holding, the small island-state’s sovereign wealth fund.

“We invested in McLaren 10 years ago,” recalls Mumtalakat CEO Mahmood al-Kooheji. “We saw the company at its rapid growth stage and went in early.”

A decade later, the fund, in partnership with France’s TAG Group, became the largest shareholder in the British Formula 1 racing, technology and automotive group, whose value reached an estimated $3.6bn in 2017, up from a modest $3.9m in 1980 when it was founded.

Al-Kooheji says Mumtalakat has since observed a similar strategy across all the sectors it invests in. “We generally invest in companies undergoing rapid growth … with a good plan to go forward and a strong management team that values transparency and good governance,” he says.

Successful formula

So far, the strategy has worked. Mumtalakat’s $10.6bn portfolio includes 60 entities across the Middle East, Europe and North America, and spans sectors ranging from real-estate to industrial manufacturing as well as financial services and agriculture.

The fund had its best year so far in 2016, when it reported a net profit of $183.2m. This followed three years of profitability that began in 2013, when a drastic restructuring programme was put in place for Bahrain’s national carrier Gulf Air, in which Mumtalakat is the sole shareholder.

Corporate governance

According to Al-Kooheji, Mumtalakat’s 2013-16 profitability resulted from focusing on economically viable projects, or those that promised the most return, as well as on good corporate governance.

“Good governance and transparency … have a profound impact [on running a successful business],” says Al-Kooheji, who says it took Mumtalakat 10 years to reach a perfect rating on the transparency scale. To achieve this, every board member undergoes a corporate governance training programme run by French business school Insead, and becomes certified at the end. “If you are in the business of selling cars, you always make sure that the driver of the car has a valid driver’s licence – corporate governance is the driving licence for running a company,” explains Al-Koheeji.

Strong performance

The executive expects Mumtalakat’s financial results in 2017 to be equally strong, although the official financial results are yet to be released. Its investments last year include a 90 per cent shareholding – in partnership with Arcapita – in Abu Dhabi-based outsourced health insurance processing services firm NAS and in a copper tube plant in Bahrain.

This year is already busy. Mumtalakat, along with New York-based Sentinel Real Estate Investment Corporation, acquired the office campus of US-based tech giant Lenovo in North Carolina in February, a transaction valued at $135.3m.

The firm is also understood to be holding talks with Japanese Softbank for a potential stake in the $100bn Vision Fund, which focuses on new technologies. If the deal works out, Mumtalakat will join two other GCC sovereign funds – Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala – which last year pledged to contribute $65bn to the fund.

Future focus

To drive future growth, Al-Koheeji cites healthcare services, which the executive expects to boom both in the GCC and globally. In 2016, the company acquired a significant shareholding in Italian firm KOS Group, which provides long-term care and rehabilitation services, as well as hospital equipment management, diagnostics and cancer care services. As of this year, KOS has expanded into Saudi Arabia, with an operation in Bahrain expected to begin soon.

“Lower oil prices are increasing the pressure for governments to shift healthcare services provision to the private sector,” Al-Kooheji says, adding that the number of people above 60 years of age is set to more than double in 10 years’ time.

Privatisation of the region’s healthcare sector, along with the increase in the aging population, will lead to a significant increase in medical transactions, an opportunity Mumtalakat is keen to exploit. “The next step [in healthcare services expansion is needing] somebody to manage healthcare billing and payments processes,” Al-Kooheji predicts. “By the time the market catches up, we are already ahead [of the game] with our investment [in NAS].”

Mumtalakat also intends to focus on education, where its existing portfolio comprises an investment in Dubai-based private schools operator Gems. Gems is expected to float an initial public offering this year, with some estimates indicating its shares could be valued at up to $5bn. Mumtalakat is also setting up a new university in Bahrain this year, focusing on applied or job-related training and education.

Renewable energy is another area of investment that Mumtalakat aims to prioritise, with a team of experts already in place to explore opportunities in this sector.

Embracing unpopularity

Mumtalakat is well aware of Bahrain’s unstable fiscal stance. Continued low oil prices and the government’s expansionary policy drove the country’s overall fiscal deficit to 13 per cent of its GDP in 2016, with debt rising to 65 per cent of GDP the same year.

However, the volatility in oil prices and their impact on the government’s fiscal stance are not changing Al-Kooheji’s resolve to focus only on economically feasible projects, whether in Bahrain or elsewhere. The executive says an estimated 60 per cent of the fund’s investments have already gone into Bahrain, with the rest distributed across the Middle East and North Africa, Europe and North America.

He does not intend to change that balance over the foreseeable future by deliberately investing more in Bahraini-based companies or projects to help address the massive state funding gap. “We are not going to change our course,” the executive says. “As an equity house, Mumtalakat will continue to make investment decisions based solely on the economic viability of a project or company [regardless of their location]."

It might be that Al-Koheeji’s stubborn stance to invest only in growth areas, offering the most return or yields, is just what Bahrain needs to help cushion its economy in the long-term from the unavoidable boom-bust cycles arising from oil prices. But not everyone in Bahrain appreciates that, and Al-Kooheji knows this.

However, unpopularity does not deter the former government executive, who says the fund still expects to find feasible projects in Bahrain, similar to the ongoing expansion of Aluminium Bahrain (Alba), in which it is a major shareholder. “Alba has created a lot of downstream activities around it … these are the kind of investments that we [made in the past] because we found them to be viable,” Al-Kooheji concludes.