MENA LPs reach toward Asia

Investors in the Middle East are looking to strengthen ties with Asia and capitalise on the region’s growth – through both MENA- and Asia-based private equity funds. Judy Kuan reports.

The flurry of fundraising seen in the Middle East and North Africa (MENA) region from 2005 seems to be continuing unabated, and in recent months, a number of MENA-based GPs have been launching funds that will invest not only in the Middle East and North Africa region, but into Asia as well.

Among these initiatives are the $5 billion (€4 billion) “family” of private equity funds being established by Dubai Islamic Bank and Dubai World – whose energy-focused fund is expected to invest in Asia, as well as the $1 billion vehicle being raised by Kuwait’s Global Investment House to invest in pre-IPO and IPO opportunities in the MENA region and Asia.

MENA GPs are also establishing joint ventures with Asian GPs to appeal to local Middle Eastern investors who want to increase their exposure to the Asian markets. For instance, the Jeddah, Saudi Arabia-based investment company Siraj Capital and Malaysian state-owned global conglomerate Johor Corporation have announced the formation of an alliance to jointly launch $500 million in Shari’ah-compliant fund vehicles – including a $250 million private equity fund called the Regional Ummah Investment Fund – for investing in Saudi Arabia and Malaysia, both predominantly Muslim countries. Another example is the joint venture formed last month between Dubai-based Abraaj Capital and India’s Sabre Capital to raise a $250 million India-focused private equity fund.

Some MENA-based LPs are also increasingly approaching Asian GPs directly, say a number of Asia-focused GPs, who have told PEO privately that Middle Eastern investors – particularly those from the Gulf countries – have tapped them for potential access to future funds. One GP mentioned that Malaysia and Indonesia in particular have drawn interest from Middle Eastern investors, although East Asian countries are attracting attention as well.

Alongside the growing trend of Middle Eastern LPs and GPs including Asia within their investment mandate is the increasing number of examples of Shari’ah-compliant private equity funds being set up. In terms of the extent to which the Shari’ah-compliance element has factored into Middle Eastern LPs’ investment strategy in Asia, the overall experience of Asia-focused GPs seems to be that of Shari’ah-compliance requirements being written into partnership agreements or side letters to give LPs the option to choose not to participate in certain investments, rather than influencing the investment mandate of the entire fund.

The climate for MENA capital being invested into Asia will be aided by political will, as well. For instance, during his tour through Saudi Arabia last week, China’s President Hu Jintao signed agreements relating to defence, security, health and trade with Saudi Arabia’s King Abdullah bin Abdul-Aziz.

With the world’s energy prices soaring and the Middle East currently swimming in cash while investment opportunities continue to sprout up in Asia, it only makes sense that the economic linkages between the Middle East and Asia will continue to strengthen. As a result, expect to see more and more of the MENA investors’ capital seeking a place to roost in Asia.