Omar Jackson is a partner at private equity firm Berkeley Assets which has headquarters in British Virgin Islands, Dubai and London. Berkeley Assets is a multi-asset company with a strong, diversified portfolio of investments across the real estate, hospitality, logistics and technologies sectors.
In an email interview with Arabian Gazette, Omar provides insights on some of the unique challenges posed by Covid-19, how to manage business risks and post-covid-19 economic predictions. Omar also shares few strategic tips for business and Entrepreneurs to manage the current crisis.
Here are the excerpts:
AG: What are some of the biggest and unique challenges companies in the Middle East are facing in the wake of Covid-19?
Omar: The UAE has a high volume of tourism and hospitality related businesses, which have experienced a sudden revenue decline due to global and domestic restrictions of movement. This has resulted in significant employment losses for the largest sectors in the country. Some of the bigger companies will be able to come through this period and post Covid-19 they should be able to recover from the downturn.
Overall, from a global perspective, the challenges for most businesses will be a lack of cash flow as a result of not being able to generate consistent revenue and manage overheads effectively. These are simple, yet business critical issues that could result in some companies closing.
AG: To what extent has the Covid-19 crisis affect Berkeley Assets business?
Omar: Most businesses will have been affected negatively by Covid-19. Berkeley Assets like any other company, has seen a decrease in cash flows, but we are in a comfortable position. In terms of raising capital, we’ve seen a decrease in terms of institutions and private clientele due to industry and individual fear of the situation, as people are more concerned with their health and surroundings rather than their finances. There aren’t many projects to place capital into right now, which means the capital is un-deployed – this isn’t an issue because we can hold that capital and deploy when the opportunity arises.
At present, due to the social distancing and quarantine rules, if we take the UK as an example where we invest most of our capital, there isn’t much to invest in when it comes to physical assets. We can’t purchase land or real estate due to the limitation on travel and lending. Everything is paused for us in a business sense, but we have plenty of liquidity meaning we can still operate effectively. We are proud and pleased that we haven’t had to lose a single member of staff, but naturally we’ve been sensible. Most are on annual leave, so that when they return to the office, we have a full team ready to work. Every member of staff is delighted to have kept their job and are in good spirits.
AG: How is your company managing Covid-19 related risks to safeguard investors?
Omar: The main “risk” is with regard to our investment portfolio. This is because we are an asset backed PE firm where the underlying value of the majority of our assets has decreased during this period. Furthermore, a great deal of our asset backed businesses in hospitality have ground to a halt and our yield generating real estate has slowed due to our decision to waiver tenants’ rental payments for four months.
We’ve also seen a general decline in the British Pound in the last 18-24 months due to Brexit, which has affected real estate value. However, the fact we raise the majority of capital in USD means we benefit hugely on the currency conversion, so our clientele, both institutional and private, can feel very secure that they have their capital in the right place.
With Covid-19, we are certainly going to see a further decline in real estate prices globally. Businesses are struggling to pay rent, there are significant job losses, people are on unpaid leave facing uncertain futures and many companies are closing. This will result in unpaid rents, defaults on mortgages which will lead to a series of real estate repossessions in both residential and commercial sectors.
Unfortunately, like in the 2008 recession this will continue, and while Covid-19 will clear up, economies around the world will decline for the next year which is inevitable when there has been eleven years of constant growth. This is just part of the cycle. If investors didn’t see it coming, they were naive and should have. Yes, it was surprising how this recession emerged, but regardless, the recession was always coming and it’s now here.
AG: How can business leaders and companies prepare for such (pandemic) disasters before, during and after?
Omar: This is a big lesson to entrepreneurs, business owners, executives of large companies, SME’s and start-ups. When you’re creating a business plan, you must have multiple scenarios in P&L’s and forecasts. The key reason for this is to prepare for a worst-case scenario, and Covid-19 is one of the most damaging situations that could happen.
Businesses need to make sure they are holding a certain percentage of liquidity to assist with cash flow and I would recommend 20%. This allows for a window of time to restructure and re-plan without having to make any rash or drastic decisions. Why do private equity firms do that and why do banks do that? Some maintain more than 20% and there’s a reason why and it’s for times like now. My advice to other owners, entrepreneurs and managers in order to prepare for pandemics and recessions, is ensure that you’ve got liquidity, and keep your expenses as low as possible without being extreme.
I’m a great believer in a very efficient workforce. Certain roles in the office are multi-skilled and I do this purposely because it gives team members a dual role. Having a workforce with various roles and responsibilities is not only great for those individuals, but it also keeps costs down. Where you don’t require having a cost in house, always look to work with agencies. I think it’s better to work with IT, design and PR agencies for example, rather than having in house functions as it makes your business operate far more efficiently. Yes, it may come at a premium, however you are getting their expertise and flexibility, and a much better quality of work. If you had all these unnecessary positions in house, you will face a major issue with cash flow in times like these.
To summarise, liquidity, having an efficient workforce and ensuring that you have a strategy for as many different situations as possible will stand you in good stead.
AG: What are your economic predictions on Covid-19 aftermath?
Omar: Covid-19 was the unlikely cause of a global recession that was undoubtedly looming on us. Post Covid-19 you may see knee-jerk reactions in the markets, meaning that investor sentiment in the stock markets turns to a positive increase in the short term as people are expecting this disaster to be over, which we have already witnessed in mid-March. However, we are in for a steady period of decline in the global economy similar to 2008, but this will be worse due to the reactions and the long-lasting effect that the pandemic will have on people and businesses.
If people and businesses have a robust strategy, they can get through it, but it’s going to be a 12-18-month period of decline. There has been nearly 12 years of constant growth, whether it be hospitality, tourism or the stock markets, and as a business owner, if you’ve not prepared for a time like this, you have a lot of learning to do. We all have to learn, but if you didn’t expect this to happen after constant growth, I’d say you would have to re-think your approach to business.
AG: For an individual investor, what are your recommendations to reallocate their investment portfolio in the current situation?
Omar: For investors in general, it depends on what they have been investing in over the years. In the UAE, if you’re talking about retail and private clientele, they tend to have a lot of insurance products, as a means to gain exposure to equity markets. For institutions, they invest into various industries, depending on their specific remits. Private equity is very different, it operates in a different side of the financial industry. People that want to get away from investing into equity markets would rather place their capital into something more straightforward, transparent and appealing right now.
While everyone’s health and wellbeing is on the forefront of our minds, I would recommend that you take a look at your financial health, make sure you’re not taking a loss, speak to financial advisors, take action, and make sure you review all of your investments. If you have real estate, keep hold of it unless you are in a financial situation that you are forced to sell. Same with physical assets, which is why we prioritise tangible assets.
Those that are in the in the markets with funds, stocks and shares need to pay attention to portfolios. I would recommend you do your own research and take responsibility by seeking expert opinions of multiple, trusted financial advisors to make sure you are doing the right thing at the right time.
AG: What are some of the opportunities that you foresee once the Coronavirus threat subsides?
Omar: Post Covid-19 there will be opportunities. There will be a ‘sale’ in the world of real estate, so we will be able to go and purchase commercial and residential, large and small projects which have been discounted and are under market value.
I think people will move capital out of any high risk, or non-tangible investments into something low risk. They will want to really protect their capital going forward because of the economic decline, and I would expect Berkeley Assets to benefit from this as a private equity firm with a clear strategy in place. Logically, when there is a recession, the real estate markets are hit. People can’t afford to pay their rents, they have lost their jobs, they can’t afford to pay their mortgages which means the institutions, mortgage issuers, banks and landlords will enter the market and repossess. The result of this is that PE firms like us, alongside other similar institutions will be able to purchase valuable and profitable real estate, assets and “projects” at a substantially discounted rate. We will of course maintain our ethical approach to asset selection, which will now more than ever, prove of vital importance.
AG: What are your tips and advice for entrepreneurs and business during the ongoing disruption caused by the Covid-19 pandemic?
1. Plan to rebound and work hard. The fact we’re self-isolating or quarantining shouldn’t be any different to how much we’re working. You also need a solid re-bound strategy in place to be ready to go once this is over.
2. Keep communicating with stakeholders and project yourself as a leader. This is the time people need to see clear direction so they can feel confident that they are being led effectively and in the right way.
3. Keep growing and don’t stagnate. Look at Covid-19 as an opportunity to maximise your potential and entrepreneurial spirit.
4. Focus on the passion. Focus on fuelling your passion for business as that’s the only way you’re really going to be successful.
5. Don’t quit. Even though you may be experiencing a business downturn due to the pandemic, just don’t quit. Keep going and remember the ability to never give up is what defines you as an entrepreneur. My mantra is work hard, learn always and never quit.
AG: Any other information that you’d like to share with us?
Omar: We are entering into a recession, Covid-19 has been a harsh start where there’s been major volatility and a major crash in the world economy, and we will see a steady decline over the next 12 months.
With this in mind, everybody needs to pay attention to their cashflow, liquidity, and workforce. If you haven’t paid attention to cash flow and liquidity over the past 12 years of positive growth in the economy, you will have to make some difficult decisions. It’s not an easy time, but I think everybody, institutionally and privately needs to pay attention to the health of their portfolios and wealth. If you’re holding tangible assets do not sell, but if you’re holding funds, there are two options. The first is to hold and wait. The second is to sell those investments that you’re already in, so speak to your advisors and make those decisions together if you are struggling.
One thing I encourage you all to do, is to use this time to educate yourself more on the world economy, what’s happening now and what’s happened in the past, so you can make your own decisions based upon facts. Don’t just take everyone else’s word for it, do your own research and you will realise the best approach for you. Sit tight over the next 12 months, cut your overheads as there will be another decade of hard work and growth to come, so spend less, go out less, spend more time at home, it will be worth it.