In the past year, investment bank CAL has experienced market-beating growth for assets under its management by leveraging technology to enhance efficiency and scalability, allowing the firm to handle increased transaction volumes with minimal resource expansion. In this interview in November 2024, Group Chief Executive of CAL Kanishke Mannakkara talks about fostering capital market development in frontier economies and driving growth with customer-centric values, a culture of innovation, and a data-driven approach. He explains how targeting underserved frontier markets will propel CAL beyond its next growth phase.
CAL recently passed a milestone of over Rs200 billion in assets under management (AUM), doubling it from a year ago. What helped CAL outperform the market for AUM growth?
We surpassed Rs200 billion in AUM a few months ago and have continued to grow. Core values like putting customers first and always offering them products we can recommend to our families, sustain our journey and define our strategy.
The company remains vigilant about staying relevant by driving continuous innovation. A key factor in our success has been a data-driven, macro-focused approach to research, where understanding broad economic trends is prioritized over individual stock picking. We believe that identifying major economic shifts leads to long-term outperformance. This evolving, rigorous process, combined with a culture of innovation and constant reassessment, has allowed the firm to create valuable products for clients and stay ahead of market trends.
As Group CEO for a year and a long-time member of CAL, how has the corporate vision evolved during your tenure and since you took on this role?
We established the foundations five years ago for our rapid evolution in the past year. Since then, the focus has been on continuous refinement and adjustment. One significant change has been in customer focus. Initially, we concentrated on high-net-worth individuals and large ticket sizes, as targeting smaller transactions was unfeasible. However, with technological advancements over the past two to three years, we have broadened our offerings to cater to a large customer base.
We follow a rigorous process for onboarding customers, including video KYC checks and physical verification of identity documents. While not fully automated due to KYC and security requirements, digital onboarding involves significant human oversight. However, after onboarding, the company has implemented a highly automated system that enhances efficiency and scalability, allowing us to manage 30 times the number of transactions we did four years ago, with only a less than 20% increase in headcount. The process has become tech-heavy, making it more efficient and scalable.
We define a transaction as money coming into or going out of our system, and the number of such transactions measures operational capability. While the industry grapples with AI, our breakthrough was around improving productivity. By leveraging technology, we have unlocked significant value, making processes more seamless and efficient.
We operate in four key businesses: bond trading (as a primary dealer, which is how we started 24-25 years ago), stock broking, investment banking (including M&A and IPOs), and asset management. Additionally, the company has expanded its operations into Bangladesh, offering stock broking, investment banking, and asset management services. We have about 145 people in Sri Lanka and 40 in Bangladesh.
We have focused on growing our retail capability by expanding across all business segments. While handling large-ticket transactions has traditionally been a growth strategy, the company recognizes that significant growth in Sri Lanka will take time, especially given the size of the economy. As such, the plan is to go deeper into existing market spaces and scale operations to handle higher transaction volumes. Additionally, we anticipate large volume transactions driven by our international expansion strategy will generate some growth.
How has your vision evolved over the years?
Specific core values and a clear purpose drive us, which the team fully embraces. Our goal is to foster capital market development in frontier economies because prosperity requires well-developed capital markets; that is our purpose. It is the guiding principle underpinned by values such as prioritizing customer interests, fostering constant innovation, ensuring relevance in a fast-changing world, treating people fairly, and promoting teamwork. These values align well with our evolving strategy and continue to drive growth and success.
You are pitching CAL as a frontier markets specialist. Why not at least emerging markets? What about frontier markets makes them attractive?
Our focus is on purpose-driven growth. Expanding into markets with already developed capital systems would not align with our mission. We target frontier markets, which are relatively more sophisticated despite being smaller. CAL leverages its experience, particularly during financial crises, to bring unique value to these markets. Additionally, global capital flows often underserve frontier markets. By increasing transaction sizes and creating an ecosystem that can attract big-ticket international investments, we aim to tap into global capital at a meaningful scale, transitioning from smaller transactions to larger ones in the $200 million range. This approach is the key to unlocking substantial growth in frontier markets.
We aim to expand into a third location within the next 18 months and eventually expand our frontier market footprint to five countries with a combined GDP footprint of around $1 trillion to $1.5 trillion. We see this scale as an interesting tipping point where we can effectively tap into significant opportunities. By combining these markets into a unified pool of potential, we believe we can unlock exciting possibilities and create a meaningful impact in frontier markets.
We see the Indian Ocean Rim as an initial geographic focus for expansion, offering a broad range of countries to choose from. This region is a strategic starting point, with the flexibility to select specific markets for further growth and development.
CAL is often associated with family businesses, offering family office services to high-net-worth clients and companies. Will this perception change as you venture overseas?
We will continue to focus on family-owned businesses, which dominate the Sri Lankan business landscape and remain a core customer segment. We possess a deep understanding of their dynamics, which we see as a valuable skill set to build on. While we are open to working with other sectors, our strategic efforts, especially in investment banking, centre around supporting family businesses. That includes equipping our teams with the knowledge and skills to navigate the unique challenges these businesses face at various stages of growth. Our core focus remains on family-owned businesses and their specific needs, although we will still work with larger entities like banks. This strategy is beneficial because family-led businesses dominate frontier markets.
Can you take us through the role of innovation in driving CAL towards its goals?
We do not need a dedicated innovation centre because we foster a culture of change across the group by hiring people who can embrace change, question the status quo and challenge existing practices. This mindset drives continuous improvement across the organization. Innovation at CAL falls into two main areas: technology solutions and process innovation. We focus on customer-facing technology and the underlying systems, making significant strides in tech-driven innovation. Improving data flow and process efficiency is vital since we work with data rather than physical products. Technology enhances these processes, ensuring smooth operations and improved outcomes. These two dimensions, powered by technology, are essential to our ongoing innovation efforts.
Our innovation efforts extend beyond technology and process improvements. They include global insights and product development. We constantly innovate how we gather and analyze data to stay informed about global trends. We also focus on creating innovative solutions for clients. Each new product is an innovation, providing something unique to the market.
Can you share your insights into the future of the Sri Lankan economy and its prospects?
As a famous quote goes, hard times lead to good decisions. That is what we do at CAL. Sri Lanka has endured a challenging period and is now on a positive trajectory. We are optimistic about its economic outlook. Key factors contributing to this optimism include fiscal reforms, central bank independence and public demand for accountability. Sri Lanka has transitioned from twin deficits to potentially twin surpluses, with the government now collecting enough taxes to cover basic outflows and running a primary surplus. If the country sticks to sensible policies, the benefits of these changes should become visible in the next two to three years. Recent policy moves to improve central bank independence and eliminate money printing to fund deficits mark a fundamental shift in economic policy. There is also a growing demand from the public for greater accountability and better governance, as people no longer accept the previous status quo and want meaningful change. These factors, combined with potential global stability, lower interest rates, and improving inflationary conditions, create a favourable environment for continued economic recovery and growth.
How should somebody with an investable portfolio approach asset allocation for the next year or two?
With interest rates coming down, there are growth opportunities in various asset classes. Specifically, we see potential in real estate, equities and fixed income. Although not directly part of our business, real estate could become attractive as interest rates fall, increasing asset prices. Equities could see further upside with a 15% growth already observed, especially if earnings continue to improve. The environment could be ripe for taking on more risk, shifting from a risk-off to a risk-on approach. Given the lower interest rate environment, longer-duration fixed-income investments may also become more appealing. Now is the time to leverage up, provided there is the ability and willingness to do so.
From where you are, what excites you about the future at CAL?
The most exciting aspect is that we have a billion-dollar platform, not just in terms of the transactions we already handle but in generating significant value through the platform we developed. While we already facilitate billions in transactions annually, the focus is on creating long-term value that could amount to a billion dollars, representing a key milestone in our growth and innovation strategy. This vision of value creation is what drives our enthusiasm for the future.
We want to build a billion-dollar platform, particularly in underdeveloped capital markets.
The vision to expand into markets with populations nearing a billion people and create capital market opportunities for them is a strategic and purpose-driven ambition amplified by our culture of continuous innovation, responsibility towards clients, and strong ethical practices—elements that are difficult to replicate and serve as key drivers in the company’s long-term success.