Under the patronage and honor of the Prince of the Eastern Province
Asharqia Chamber launches the activities of the Endowment Forum 2020 best endowment practices
His Royal Highness, Prince Saud bin Nayef bin Abdulaziz Al Saud, Governor of the Eastern Region and Honorary Chairman of the Endowment Committee, on Monday 30 November 2020 AD, inaugurated the activities of the Endowment Practices Forum under the title (Return on Investment on Endowments), which was organized by the Asharqia Chamber in strategic partnership with The Endowment Authority, through visual communication technology, and in the midst of a large presence of government officials, an elite of local and international businessmen and academics, and those with expertise from specialists and those interested in the field of endowments.
The word of the Prince of the region
His Highness commended the state’s endowment as a tributary of development and one of the pillars of economic development and meeting the needs of society, recalling the initiative of the founding king - may God have mercy on him - to establish the Ain al-Aziziyah Waqf, which was to serve the pilgrims, pilgrims and those who pass by it, to be an endowment exceeding its benefit and impact to This day, His Highness indicated that the establishment of the General Authority for Endowments during the era of the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud - may God protect him - comes as an extension of the state’s care and interest in the endowment, reinforcing the endowment’s march in development, and an affirmation of its role in building society, and a catalyst for those standing to do more.
His Highness referred to the qualitative leaps the endowment sector witnessed recently, explaining that everyone's duty is to invest this, work with a holistic vision for the endowment sector, and benefit from local and international experiences, pointing out that the issue of return from investment is one of the issues that concern those in charge of endowment affairs. The role of the Forum is important and pivotal to be a window that illuminates the way for those in charge of endowments and their affairs and contributes to providing them with the necessary knowledge to raise the efficiency of investment that they supervise, expressing his gratitude to the forum, its organizers and its participants, wishing them success in making recommendations that contribute to strengthening the committee’s role in endowment work.
For his part, the head of the Asharqia Chamber, Abdul Hakim bin Hamad Al-Ammar Al-Khalidi, said that the endowment represents a type of social interdependence and compassion, a link to link the ancestors to the back, a manifestation of social vitality, and a realistic expression of the symbiotic tendency approved by Islam, and indicated that it is in front of what the endowment represents From real wealth that we rediscover and reformulate within the framework of the goals of Vision 2030 AD, we have seen broad mobility and tireless work from all parties and stakeholders to upgrade this sector and access it to diversify its channels and investments and redirect them towards development needs and priorities to be able to make the desired economic and social impact.
He indicated that the Chamber, with its values of influence, creativity, and responsibility, interacted with the major transformations taking place in the endowment sector, and worked in response to these transformations to diversify its awareness-raising initiatives and programs. And its role in supporting the sustainability of growth for enterprises, given that the seller and the consumer form one community framework.
For his part, His Excellency the Governor of the General Authority for Endowments, Imad bin Saleh Al-Kharashi, considered the endowment sector to be a major engine in the wheel of development in this blessed country, and that it has effective contributions in the economic and social fields .. expressing his hope to partner with various sectors to enhance this role and create a package of The enablers and incentives that contribute to the upgrading and advancement of the endowment sector and its increase in its contributions to the domestic product, and he explained during his speech that the authority has an ambitious forward-looking vision to achieve the aspirations of our wise leadership to advance this sector, to be a productive and effective sector in achieving sustainable development, through a number of initiatives and products. Innovative innovations that will change the concept of the endowment sector according to best practices in this field.
Integrated financial system
He added that the authority is working to build an integrated financial system supported by regulatory policies that will contribute - God willing - to the development of investment and financial tools for endowments in a manner that is consistent with development needs, and to open new opportunities for opportunities that emulate the best global, regional and local practices, and to direct endowment banks to specific programs, which will be It has a great impact on consolidating the economic and social value of the endowment with a modern concept that is consistent with the aspirations of our wise leadership, may God support it, and with the strategic directions of the Kingdom's vision 2020. ”This will include offering various investment formulas and products such as endowment sukuk, bonds with a social impact, endowment investment portfolios, debt instruments, and others to achieve Financial sustainability of the non-profit sector and diversification of its income sources.
A bunch of partnerships
Al-Kharashi went on to say: The authority is also working to conclude a set of partnerships and cooperation agreements with a number of relevant authorities in this field to reach an effective and influential sector, "... it is expected" that these efforts will result in a strategic shift in the process of the endowment sector, God willing.
He expressed his hope that recommendations and proposals would come out of this forum that "contribute to developing endowment investments, management methods, and products, and measuring their impact, looking forward to a constructive and fruitful cooperation to complete the development process in this blessed country."
For his part, the head of the Endowments Committee in the Asharqia Chamber, Ayed bin Farhan Al-Qahtani, stressed the importance of what the forum deals with in terms of a topic that is a pivotal factor in the sustainability, prosperity, and spread of endowments. He pointed out that it was an extension and complement to the Awqaf Forum in 2018, and its positive impact on endowment activity in the Kingdom in general, and in the Eastern Province in particular.
Efficiency of endowments
Al-Qahtani went on to say that if we are safe and agree on the importance of the endowment sector and its level of influence, it is important as specialists to present new proposals that raise the efficiency of endowments, increase the growth of their investments, and spread them among the community, hence the idea of this forum that sheds light on many aspects of upgrading Endowments, especially with regard to their investment returns and the mechanisms for reinvesting them again, in addition to exploring its roles and future in accordance with best endowment practices in light of the goals of Vision 2030.
The opening of the forum had been preceded by the main session, under the title (Objectives of Investment), in which His Eminence Sheikh Saad bin Muhammad Al-Muhanna, Secretary-General of the Endowments Committee in the Asharqia Chamber, spoke and chaired and moderated by a member of the Board of Directors and Deputy Chairman of the Endowment Committee, Mr. Hamad bin Hammoud Al-Hammad, during which he recommended Al-Muhanna The importance of presenting scientific theses on the purposes of investing in endowments and others on the purposes of banks in endowments, as well as the need to prepare training bags that are concerned with the purposes of endowments, and to emphasize teaching people the jurisprudence of endowments and their purposes, especially for principals and investors, pointing out that endowments are closeness and worship of God Almighty.
Al-Muhanna emphasized that there is more than one evidence of the legitimacy of investing in endowments, indicating that the Messenger of God, may God bless him and grant him peace, and the Rightly Guided Caliphs were investing charitable funds. Where he used to allocate fever to her for preservation, pasture, mother and child, and benefit from it and the Muslims heal as proven in the Sahih of the story of the two scholars. Rather, shepherds lay them down and invest their children and their offspring.
Al-Muhanna went on to say that the second evidence for the legality of investing in endowments is to measure it on the money of orphans, as the jurists have agreed that it is permissible to invest it by the ruler with regard to the benefit of orphans in the interest, but some jurists have said that it is necessary to invest them in accordance with Charity, it is permissible to invest the funds of the endowment in matters that are in the interest of the arrested, with the whole that both the money of the orphan and the endowment is the property of others and disposing of it is dependent on the interest, while the third evidence comes, that the Prophet, may God bless him and grant him the righteous peace, He bought two shatters for him, one of them sold him for a dinar and he brought it for a dinar and a sheep, so he called him a blessing. ”The indication from the hadeeth is that the lair has invested the money of others in what has an interest in it. ((Endowments) to invest them in a manner that benefits the benefit of the arrested and arrested.
Endowment investment for maximum return
In the first session, moderated by Eng. Anas Al-Dowayan, CEO of Al-Dowyan Group, Awqaf Principal and Investments Expert, and it was titled (Successful Strategic Transformations and Their Impact on Return on Investment). The investment arm of the General Authority of Endowments, and the most prominent of its tasks as it was established in 2017 AD to be the authority concerned with the endowment sector in the Kingdom.
Al-Fayez said that the authority performs two main roles: the first is regulatory and legislative, which is concerned with organizing the endowment sector in the Kingdom, preserving and supervising endowments, and the second is operational and administrative, which is concerned with developing and managing endowments, developing them and disbursing their revenues in a way that achieves the conditions of the endowments and benefits.
Regarding the endowment company, Al-Fayez said that it is a closed joint stock company owned by the authority and its investment arm, indicating that the company was established in December in the year 2018 AD with the main objective of developing endowments, raising the efficiency of investment and the sustainability of returns, indicating that the company plays three main roles: Real estate investments and endowment development, and financial investments through portfolio and fund management.
Endowments sector index
Al-Fayez pointed out that the endowment sector index witnessed a sharp decline in the first quarter of this year 2020 AD at a rate of 20%, indicating that the field of endowment investments has significantly improved in the level of performance and efficiency during the past years before the outbreak of the Corona pandemic, which resulted in a significant increase in the index that reached Its percentage is 20.19% in 2019.
Al-Fayez said that the slowdown in economic activity resulting from the Corona pandemic led to a decline of 20.24% with the beginning of the year 2020 AD, and the target performance index also decreased the performance of the portfolios consisting of 60% stocks and 40% bonds by 12.88%, pointing out that the rise in gold prices increased by 12.88%. 17% put it at the forefront of current investment options, followed by domestic fixed income instruments, with a return of 3.33%
Al-Fayez reviewed the initiatives of the General Authority for Endowments and the Endowment Company for Investment in mitigating the damages resulting from the Corona pandemic, as the Authority launched the Community Fund to mitigate the effects of the epidemic in cooperation with the Ministry of Human Resources and Social Development, the Health Endowment Fund and other associations, donors and companies with a capital of 500 million riyals.
In an initiative to mitigate the damage caused by the pandemic, Awqaf Investment Company presented a package of initiatives, taking into account the following factors: The economic damage to residential and commercial real estate in the regions of Makkah Al-Mukarramah and Madinah Al-Munawwarah, and any other region that depends on commercial activity for the seasons of Hajj and Umrah. The annual rent for real estate located in other regions of the Kingdom.
The outlook is long term
On the most important rules for managing endowment investments for the year 2020 AD and beyond are: a long-term view that is consistent with the nature of endowment assets and the nature of the results targeted from endowment investments, and the focus on achieving profits that contribute to improving the total return on a portfolio by investing in diversifying the portfolio in terms of quality. Geographical, effective exit, which means setting up an organized methodology for sales or exit from investments that are useless and inconsistent with the objectives of the investment program, stability and stability in terms of developing a long-term strategy at a high level of accuracy and clarity, and finally the independence of the investment perspective through the formation of theories and directions independent of Portfolio through a correct reading of investment, economic and financial conditions at the portfolio and market level.
Endowment investment for maximum return
In his paper titled How can I invest my endowment for the maximum return ?, Mr. Alex Kershaw, Stanhope Capital's partner ((CFA), spoke about the methods that an investor wishing to comply with Islamic Sharia can follow, saying: Different types of Sharia compliance are used. By families and institutional investors in the Kingdom of Saudi Arabia, some of which can be called simple Sharia, which is an investment only in funds and other approved investments that are compliant with Islamic law by their providers, and the simplified Sharia with exemptions, which is an investment in funds that are compatible with Islamic Sharia except for fixed income. There are organized Sharia, which is investing according to a Sharia structure in traditional funds, and finally, hybrid Sharia, which is a simple Sharia approach to easily accessible asset classes such as public stocks, private stocks, and real estate.
In the second session, which was moderated by a member of the Endowments Committee in the Asharqia Chamber, Turki Al-Rajhi, and titled (Developmental Horizons for Return on Investment), he said to Mr. Mark Salway, Managing Director of MKS Fundraising and Management, a visiting lecturer at the College of Business Administration and a former Director of Social Finance And social investment, during his paper which was titled Social Investment in Societies and How can Awqaf Benefit ?, that social investments achieve better returns and impact than expected on endowments, as they are different funds that focus on different social goals that enable the growth of capital and infrastructure quickly and enable The trustees also have access to information, stressing the importance of social investment organizations, given their strategy that adopts the development of financial sustainability, focuses on influence, expansion, growth and investment in technology, and has a great deal of independence and flexibility in income flows, in addition to the determinants it contains. Such as focusing on building infrastructure, innovation, fundraising, developing assets, developing their physical environment, and developing a new activity or service
From passive to an active strategy
On his part, Eng. Mohammed bin Talal Arab, CEO of Sulaymaniyah Group for Investments, reviewed the basic elements in the investment process, most notably: governance and management, invested assets, and strategic direction. Arabs talked about a prominent practical experience, which is the experience of managing Yale endowments, which was managed in 1989 by David Swensen, after six years of experience in Wall Street as an asset manager, and the size of the portfolio at that time was about one billion dollars, and he was able to develop it within 3 decades by completely changing the composition of the portfolio, as the size of the portfolio rose to 31.2 billion dollars, through several measures, namely: shifting from an idle strategy to An active strategy, increasing focus on institutional activities, reducing traditional direct activities, building a professional management structure, in addition to building a coherent investment strategy.
Local endowment wallet
Arab said that the university’s portfolio consisted of several assets in different assets and managed in a traditional manner, through undocumented contracting with tenants and a poorly trained maintenance team, in addition to a local stock portfolio that is managed internally without a clear strategy with poor efficiency, and a relatively large cash The portfolio without clear utilization and affected by inflation factors, as the portfolio was reconfigured by replacing the property with units in real estate traded funds (REIT), and an agreement with a financial company to manage the stock portfolio in a professional manner, and exposure to Murabaha funds at 60% of the cash.
Regarding the positive measures taken in establishing a local endowment portfolio, he said that it contributed to alleviating the cumbersome operational burdens of the real estate, such as maintenance and collection, and the shift from the unprofessional daily management of shares to the periodic follow-up of professional management reports for the portfolio, and the use of cash in short-term Murabaha funds to achieve returns Low risk, relatively increased portfolio diversification, and improved risk level for the overall portfolio.
Governance in investment
And in the third session, moderated by a member of the Endowments Committee in the Asharqia Chamber, Engineer Musa Al-Mousa, and titled (Governance in Investment), during which Dr. Ziyad bin Othman Al-Hogail, Chairman of the Knowledge Linking Company, and the former CEO of Sulaiman Al-Rajhi Endowments Holding Company, and Dr. Imad Al-Saghir, the strategic planning and organizational development consultant, who explained that there are basic criteria for endowment investment, including stability of endowment ownership, relative safety, achieving a due return, flexibility in changing the field of investment and its formulas, the balance between social and economic return, the balance between the interests of the beneficiaries' generations, and the weighting of Public interest over private interest.
A Standing Family Charter
Al-Sagheer added, in his paper entitled (Developing Endowment Investments Returns Challenges and Hopes), that despite the aforementioned advantages, practical measures must be applied to govern endowment investments, such as adopting modern methods of managing endowment projects, and this requires professional and collective consideration, transparency and auditing. Financial and legal in investment operations, stressing the importance of having a charter for the standing family to control its relationship with the endowment, and the use of competent and specialized people in managing investment aspects as a basic criterion for an appointment before any other consideration, with the need to adopt the orientations and aspirations of the endowment.
In order to reduce the risks associated with the investment process of the endowment, Al-Sagheer said: “The endowment should make a great effort to diversify the investment activities, and take care to build a clear investment strategy, build an investment policy document and approve it from the Presidency Council and review it periodically, and attention must be paid to the exit strategy from Investing (Exit strategy) before entering into an investment, "stressing the importance of avoiding high-risk investments such as speculation. And not to enter into stocks as a speculator, and to enter as a developer in real estate and not as a speculator. "
In this regard, Al-Sagheer stressed the importance of distributing assets in countries, activities and currencies, geographical diversification and activities, not being satisfied with stocks and real estate (the existence of the market and the existence of goods), the availability of partners in the commercial sector and for sustainability in investment, he noted the need to work on strategic investment with real returns, and care With the tasks of managing and distributing assets, maintaining a certain amount of liquidity, and professionally forming an investment committee for the endowment.
While Al-Hogail called, during his paper entitled Introduction to Calculating Expenditure Budgets in Endowments, to adhere to the stability of the exchange and not to change it by more than 20%, to form exchange reserves and to invest them in a low-risk liquid, and not to link to the annual results of the calculation of the exchange and look further, and to take into account inflation He pointed out that the distribution of investments in a professional manner achieves the objectives of the endowment, investing the reserves of replacement and renewal and assessing their expected growth reliably, and investigating fairness in the benefits issued by the endowment among the generations of beneficiaries.
Al-Hogail pointed out that most of the spending channels depend mainly or entirely on what they receive from endowments, and these revenues often fluctuate, exposing the company to stumbling and negatives, especially since most of the endowments -
And perhaps all of them - facilities are not used to support spending, so it improves the equality of the annual spending rate and is calculated based on the expenditures of the past 3 years, and that it is invested in a liquid form (sukuk, deposits, murabaha), and it is disbursed to support spending so that the spending does not decrease from the previous year by more than a percentage Specific (say 20%) to avoid confusing the drainage channels.
A specific mechanism for calculating spending
Al-Hogail suggested a specific mechanism for calculating expenditures that depends on historical information (asset value and growth, revenue and its growth, profits and their growth, nature, and risks of assets, estimation of replacement and renewal needs, past inflation and expected inflation ... etc.), and based on these data, a target amount is set. (Value not percentage) of spending is based on historical information and future expectations, and this is based on indicators (percentages of the value of assets or profits), taking into account that the total value of assets does not increase in a way that dominates the amount of spending in the past, calculated on 3 or 5 years. It is reviewed in every economic cycle.
He mentioned that a target rate for spending can be set from the value of assets, for example, 3 or 4%, which is the percentage that many international endowments have settled on after a long search. As for endowments that have large unmanaged assets, they can start with lower rates, and then seek to gradually raise the percentage through Replacement and diversification of assets and to target ratios of 3 or 4% within 5 years, for example.
Real estate portfolios
In the fourth session, moderated by a member of the Endowments Committee in the Asharqia Chamber, Abdul Salam Al-Jaber, and titled (Investment Advice), Abdul-Rahman Al-Issa - interested in investing endowments - spoke about ideas and practices in endowment investment, where he said that the endowment was previously made up of only a real estate portfolio of diversified assets Real estate in several cities in the Kingdom, and in order to enter into new investment assets, work has been done to diversify the investment portfolio in the endowment, through which the risks are diversified, the returns increased, and liquidity is better provided for the endowment. Private equity, murabaha funds, and venture investment indicating that practices in endowment investing were in the form of real estate only, but now they are diversified.
The financial and investment advisor, Ayman bin Abdulaziz Abanami, said that real estate constitutes from 70% to 100% of the distribution of endowment portfolios in Saudi Arabia, indicating a large volume of uninvested cash liquidity.
Abanami talked about the objectives of investing in endowments, stressing that they lead to the growth and protection of capital, in addition to increasing the rate of annual distributions and returns, and raise the objectives of social investment, "public benefit."
Regarding the optimal size of investment in the endowment sector, Abanami indicated that many studies have proven the importance of diversification in investment, pointing to the study of Edwin Elton and Martin Geberer in a book produced under the title (Modern Portfolio Theory and Investment Analysis) that any increase in shares after 20 shares will not reduce the risks The portfolio is only 0.8%, and this means that the main advantage of diversification is eroding and almost decreasing at a certain point (20 shares), and the British investor Benjamin Graham in his book (The Smart Investor) believes that the ideal form of diversification is that the portfolio includes between 10 to 30 different shares. There is also a survey conducted in the year 2011, which showed that the funds invested in between 30 - 50 different shares perform better than the funds invested in 700 different shares.
Abanami said that there is no better investment path than others and there is no optimum size, but diversification is important and necessary, and excessive diversification weakens returns, and it is important to diversify between the four forms of investment (assets - stocks - company shares - liquidity), and about the importance of investment. Insecurities, Abanme said experts advise investing in 10 companies and up to 20 companies.
Diversification should not exceed 20 to 30 companies in large portfolios so that they do not lose the advantage of diversification in reducing risks and affecting returns, and diversifying within the stock portfolio between types of risks in terms of level, activity and geography, indicating that the top 10 university endowments in America have grown. Its assets increased by 5.3% during 2019, and in 2019 the endowment distributed 4.5% of its funds disbursed as financial aid to scholarship students, research priorities, and salaries.
The endowment investments defaulted
For his part, the certified accountant and valuer of the establishments, Azzam bin Omar Al Mufaddi, spoke about "the reasons for the faltering endowment investments" and identified them in ten reasons, stressing the importance of compatibility between representatives of the endowment and investment representatives, and the clarity of powers between the two parties.
Al-Mufadi pointed out that the main reason for stumbling is the completion of the purchase or investment deals without the help of experts and specialists. He noted the importance of appointing experts with practical and professional competence to take over the endowment investments, either through employment or with the help of expert houses.
Accordingly, Al-Mufadi believes that there is a need for a clear investment policy for the endowment, in terms of the form, size, activity and objectives of the endowment, and that the endowment policies should not conflict with investment policies in anything. In the absence of this policy, it leads to default.
Among the features of this policy is the lack of “cognitive bias among the investment decision-makers or the board of directors”. The stumbling block may come from not experimenting with new business models that adopt modern methods of investment, and that would be a cause of faltering.
Al-Mufadi believes that the reasons for the faltering endowment investments are "confusion between the roles of studying investment opportunities and the investment decision and the investment broker." The mediator is the one who brings investment opportunities to the endowment in return for a wider commission, while the decision-maker is the investment committee or the board of directors, and it happens that someone plays more than one role. This leads to a conflict of interests and the absence of governance to take the decision, and the result is the investment project faltering.
Al-Mufadi believes that “the management of operational decisions in investments may follow a mechanism similar to the method of making operational decisions in the endowment, or its decisions are characterized by delays and lack of appropriate timing in a way that harms the interest of the investment, so defaulting occurs, hence the importance of clarity of a clear investment policy.
As for the sixth reason, it is - according to what is useful - it is the conflict of interests and the lack of independence or direct and indirect benefits of investment decision-makers or representatives of the endowment in investment .. while the seventh reason was identified as “restricting investments with terms and conditions that may lead to harm,” such as setting some peers Some restrictions on investment in order to protect it, but they may often harm the investment, such as requiring the endowment to agree to some decisions related to growth and expansion, borrowing, appointment, or others.
Al-Mufadi affirms that the eighth reason for stumbling comes from “confusion between the roles of the board of directors, the investment director, the representative of the endowment in the general assembly and the board of directors of the invested company.”
The ninth reason is considering a joint investment with others as part of the endowment departments, and linking operational and development investment decisions with the approval of the endowment council, while joint investment is an independent administration from the endowment and not from its administrations.
The tenth reason is that the representative of the endowment on the board of directors of the investing company is not an addition to the investment project or an obstacle to decisions, or does not understand the roles and responsibilities of the board of directors.