H.E. Shaikh Mohammed bin Essa Al Khalifa, Chief Executive of the Bahrain Economic Development Board (EDB), said: “Our aspiration is to place the GCC as a third destination; for people to talk about India, China and the Gulf. It's about all of us being a bigger player on the global stage.” In your opinion is GCC going to play a significant role on the global stage alongside giants such as China and India?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: I think to an extent the GCC is already there. I don’t think we can talk anymore about just geographical differences. I think the world now divides into countries that have got upward momentum and downward momentum. A lot of the old world, the west, the U.S, Europe, so on and so forth, has got downward momentum, its got an aging population, and increasing debt burden and that debt burden sits at an individual level, at a company level and increasing at a government level and they are going to be running up the down escalator for generations to come where as the rest of the world with upper momentum and that is the emerging markets, that is China, that is Brazil, that is India that you have already talked about but increasingly the GCC as well, there is eternal momentum, there is upward momentum and that is caused by a young increasingly skilled population and by the abundance of natural resources.

According to the Central Bank Bahrain’s economy should grow by 3% in 2009 admits the global economic downturn. What are the key engines fuelling this growth and how well is Bahraini economy insulated from the effect of the global economic downturn?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: I think the local Bahraini market has its own drivers, I mean the population size of Bahrain is not like other GCC countries. It has a sizeable local population plus some expatriates. So the local population is in size capable to sustain this market, there is a consumer demand at a fairly good level plus we are integrated to that extent with regional economies such as Saudi Arabia via the Causeway. So this keeps the Bahraini economy going, plus there is a lot of infrastructure development going on in Bahrain, which has not finished yet. So in terms of capitol expansion requirement in the country, I think the trend is just to continue moving forward.

How do you assess the situation in Bahrain’s Islamic Banking sector and its ability to overcome the financial sector?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: There have been a number of centers that have emerged in finance in recent years in Bahrain. Because of its history, because of its skilled workforce here, it has managed to keep its leadership in financial services supported in particular by the central bank of Bahrain. It has got a reputation of being a clean, well regulated financial center. Particularly in the new environment where people are cautious about financial institutions, becoming a bank assistant regarded as a safe and well regulated is increasingly important. To add to that also you have to see what exposure Islamic banks have in the region. It wasn’t the same as in the West, their exposure is more regional in the markets here and it was more towards physical assets.

Can you describe the key challenges and also the opportunities that are associated with investing during this global economic downturn?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: Well the financial institutions really, it’s all a question of rebuilding confidence and that applies in GCC just as it applies in the rest of the world and people want to know what is going on under the bonnet in financial institutions. We have never had 2 or 3 quarters, in which companies have been able to report results, people have been able to look at the provisions of these companies they’ve looked at the chairman’s statements. And they’re starting to get confidence that the worst has probably passed. We’ve also had comforting statements coming from regulators, comforting statements from governments to stay that they will stand squarely behind their financial institutions. So I think we’ve probably now reached a bottom that people have now seen most of the worst that has emerged within this region, within financial institutions and the mission forward is then to rebuild on those value sheets, to start rebuilding credit ratings, start capital flowing gain within the region. But one thing local banks have on their side is their size compared to chains such as City or Barkers, these are relatively small, relatively simple financial institutions, and therefore the escape for them to get themselves into the trouble some western banks have found themselves in has been similarly small.

Many argue that the Islamic finance will soon provide very substantial and promising opportunity for diversification. Do you see Islamic finance as providential response of the global financial crisis or the global financial system? Do you see that as an answer to Islamic banking?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: I think it depends; it also has an element of innovation in it. So people who are looking for this type or kind of money to take this new ideas and concept we’ve brought, they can probably brace it faster than others and benefit from it. The more traditional sectors, maybe there is going to be some damage so in terms of timing they might be slightly behind the rest. But that’s why were seeing the Islamic banking picking up quite rapidly in this part of the world as well as Far East.

There is a substitution basically happening?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: All of the things were seeing in traditional banking, in conventional banking, really echo what’s happening in Islamic banking. Around the world now we’ve seen customs demand simpler products, products that are transparent, things that are easier to understand and contracts that aren’t ambiguous. And all those things echo in Islamic banking as well. We are returning to probably a simpler world were people are looking for less financial engineering and products which, frankly, give them what they were promised.

The investment bank was unlikely to raise more than a total of $1 billion in funds in 2009, compared with $1.8 billion raised in the previous year. How challenging is it to raise capital and how well is Gulf Finance House poised to overcome the global economic downturn?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: It is definitely a challenging time but at the same time Gulf Finance House is uniquely positioned to continue tapping the market. We have very good brand name, in the past we have been very good to our customers and have had fantastic results that, compared to other institutions, are by far better. And we have developed relationships in the region. Moreover we are looking to improve out fundraising capabilities and tapping into new markets. And I believe going forward, we, Gulf Finance House , are in a better position than others.

To what extent has Gulf Finance House been hit by the downturn compared to other Islamic finance houses? How could it compare itself to others?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: In terms of volume, I think the numbers aren’t out yet. We cannot compare it clearly. But I can tell you, for example, a number of facts that are just basically stocked; you know, offering products to the market. The factory here is very active; a couple products have already been launched since we moved here and third and fourth quarter also, their number of products has already been set to launch. So this is not a big issue for us.

Could you tell us, what is your feeling on that?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: I think there is a vacuum that’s been created in this market, certainly compared with placing months two years ago. A lot of previously trusted brands, a lot of previously admired businesses have disappeared in time, or their balance sheets are irreparably broken. In some cases these businesses won’t recover. Now what that means is for businesses that have stood firm during tough times, there is going to be far less competition. And some of those vacuums, some of those voids that were previously filled by competitors, that’s probably our biggest opportunity to go to investors who are feeling quite shell-shocked, they’ve seen the apocalyptic destruction of wealth over the last 18 months. Some of these people have really locked into the abyss during that time and had a feeling of “I used to be dynastically wealthy and I’m an awful lot less wealthy than I was. So now I need simpler products that people can trust, to help me rebuild my wealth and help me preserve it.”

You said “as risk appetite has taken a severe beating in the global financial downturn, deal sizes in private equity are decreasing.” Furthermore, Gulf Finance House swung to a $10 million net loss for the fourth quarter on provisions it took on investments. How would you characterize your investment strategy (key fields you will invest in) and what plans and emergency plans do you have stored to bring the bank into green numbers?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: Today everybody is looking to do smaller deals because it’s easier to do, leverage is available; it’s easier to get this money. We are also looking into sectors that are counter-cyclical or the demand for them is there. In terms of the growth perspective for Gulf Finance House , I believe the demand is there still for simpler products and investors today, their expectation of returns are slightly being turned down but the investors here are looking for bargain transactions and in the back of our minds we are looking around for opportunities that could benefit the class of Gulf Finance House as well as the region through the transfer of technology, through transfer of know-how in this part of the world. We just want to put capital into companies in the west; we also want to bring know-how and technology to benefit the people of the region.

What risk management tools do you have in place to monitor risks?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: It all depends of the type of project, the type of asset we will be investing into. I don’t think that there is one single tool that can be used asses everything from private equity to venture capitals, international equities, local equities and bonds and so on and so forth. There is the question of finding the right tool to meet the asset class. And I suspect that over the last two years, actually people have probably relied too much on risk tools and that people have taken comfort from the fact that their VAR is at a particular level or that they’ve got an information ratio or risk budget at a particular level which means that they are safe. And what we’ve seen over the last two years, is that some of those risk tools have proved to be a false comfort. So I think people now probably are taking another look at the sort of risk tools that they previously used and are saying “Well, was I relying on them perhaps too much?”

So it’s ‘welcome back to the human?’

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: To an extent, yes. These are useful tools to look at, but it’s kind of like flying with the autopilot on. You still feel a lot safer if you’ve got a human on the controls.

What do you define as your major challenge now?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: Well, the biggest challenge now is actually raising equity. There are lots and lots of cheap assets out there, almost everywhere that we look, whether it be in equity or property, there are opportunities. Most things in the world are cheap. Perhaps less cheap than they were three months ago, but still, on a historic basis, they are very good values. And it’s possible to put together an almost limitless range of products which over the next five years will deliver excellent returns for investors. Really is a question of taking those shell-shocked investors and nursing them back into markets. And what we’re finding is that people are really at one extreme or another. Either people say, ‘I still don’t trust my bank, let alone a product, and therefore I can only be tempted into guaranteed products that are very, very safe.’ So they’re just putting their toe back into the investment water. There are other people who are saying, perhaps more seasoned investors, who are saying, ‘well, I’ve seen this before. You know, I have seen previous crises, and this crisis is different, but they always are different. But I know that investing at a time when everybody else is running for the exit door generally is a good investment strategy.’ So there are a small number of people, five or ten percent of the market who are saying, ‘I’m buying private equity, I’m buying listed equities, I’m buying property, because I know that in five years’ time I could personally be pushing numbers buying bonds and making a lot of money.

Everybody’s telling us “it’s the right time to invest”, “we’ve all seen the crisis”. However, only five to ten percent of people believe in it and take the risk in investing their funds. How do you explain this gap between what should be wise to do and the effective decisions in investing?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: It’s the same in reverse people getting out of dotcom shares in 2000 people saying they were getting out of property two years ago. When there’s nothing but blue sky and everyone’s telling you that it’s a one way bet of making investment, it’s probably time to be looking the other way. So just when you’re in a rampant bull market, everyone’s an expert, everyone’s making money. In a bear market such as this; everyone’s got their cash stored under the bed. It’s always the five or so percent that ultimately represents the smart money.

How does Gulf Finance House address sustainable development in both internal procedures and also investments you’re making. How do you address this green issue?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: I think Gulf Finance House is very well-known for such development projects, and we insure that the master plan is staged that there is sustainable development, and that the green aspect of these projects is being taken care of at an early stage. Formerly during the construction phases we tried to make sure certain basic elements are there in terms of respecting and lessening the damages to the environment. We, by nature, have to do an environmental impact assessment for all the project, etc. and we at the moment are thinking of unilateral assessment or cardinal benefit assessment for a number of projects that we have. We have to see if we can extract some cardinal benefit from these projects. And basically trade with them, going forward. So sustainability and green hat is always in mind in Gulf Finance House .

How does it work with carbon projects concretely? Can you explain this?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: Basically, you have emittance of carbon, so carbon dioxide, and you typically have industrial projects, even real estate projects for example, they consume a lot of electricity, etc. so we bring an assessment department and they go through whatever assets you have on the site, on the premises. And they do a quick assessment and they have kind of tabulated, for example they say, “Certain amount of air conditioning is responsible for emitting X tons of CO2 per year”, and they say, “What measures are you trying to put in place to reduce that.” So all these measures we take a note of, and once this certificate is given to you, then we can trade with those credit, or if you need credit, then you have to buy from the market. Today, because we are starting fresh, we can build or design products that will generate credit for us. Where there is a demand for it, lets say for countries or companies else where, for them to make changes is expensive, so they’d rather buy the credit from the market, rather than make drastic changes to their business

What are basically your expansion plans as a bank, and what are your strategic goals for 2009?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: Well, from an asset management aspect, it’s one big opportunity and I think very few people, a year ago, would have imagined the sort of opportunity arising in soviet classes. And to an extent that makes planning quite difficult. You’re saying what sort of product will we be launching in the 4th quarter of this year or the 1st or 2nd quarter of next year. The honest answer is, we don’t really know, because we don’t know where the opportunities will be. Just as people expected commercial property to have fallen by 40%. We don’t know how quickly we’ll recover. What we do know is that at the moment there are so many cheap assets, that we can produce just as many products as the market will bear. In terms of opportunities, I think this is the best time for taking evaluations of very attractive assets that are available for sale, that we can go and acquire and also benefit. The thinking here is that Gulf Finance House is not just an asset here but it is also putting money in other places. Try to bring and transfer know-how into the region. The markets are very promising in this part of the world, and it makes sense for people who have assets that know how to manage it, but are looking for new markets and fresh capital, just to keep up with people at Gulf Finance House . We can open the doors internally in the region and partner with them. We are a very strong player in the GCC markets, North Africa, emerging markets; generally we have very good networks that we can help them and take them forward.

Let’s say now, if you are looking for international co-operations, which kind of business partner would you like to be attracting or would you be interested to work with?

Gulf Finance House Investment Bank in Bahrain, Head of Private Equity at Gulf Finance House, Nabeel Kazerooni: In terms of partnership, we are looking for companies that have been there for at least 25 years, with good management, with good assistance, good products. But unfortunately today, it has reached a state that having access to capital for further growth is becoming restricted. So this is the role we would like to play. We would like to come to them at the moment and say, “listen, we can offer you this and this, plus we can open doors for you and expand in other emerging markets.” Okay? In terms of sectors, I believe manufacturing is very favorable in this part of the world because cost of energy is a factor. Plenty of resources, lands, port, facilities, labor are cheap, so manufacturing is becoming attractive. At the same time the new tech departments, IT, Telecom, the population size can support investing in these kinds of sectors.