MENA private equity draws local attention

Private equity fundraising activity in the Middle East and North Africa region spiked noticeably last year, driven by growing participation from local investors. By Judy Kuan.

Despite the geopolitical risks that have long been associated with the Middle East, high oil prices and the development of local capital markets provided the ingredients for a significant build-up in new private equity funds raised in the region last year.

Naqvi: sees opportunities where international investors see risk.

“In some ways, I think 2005 can be seen as a coming of age for the region,” says Arif Naqvi, executive vice chairman and CEO of Dubai-headquartered Abraaj Capital, whose 2005-vintage $500 million Abraaj Buyout Fund II (ABOF II) is the largest MENA-focused fund raised to date. “Growth is good and fundamentals are generally strong, and many positive developments and initiatives have been announced and are underway.”

Abraaj is not the only private equity firm targeting the Middle East and North Africa to have had success on the fundraising trail last year. Shuaa Partners, also based in Dubai, closed the Shuaa Partners Fund I on $200 million in September, while Emirates International Oil Company, Standard Bank and Gulf International Bank helped launch the $300 million GCC Energy Fund in March. Other private equity groups such as the recently established UAE firm The Group, London-based Capital Trust Group, Dubai’s Injazat and Geneva-headquartered Swicorp also launched new funds with an expected total capitalisation of over $1.5 billion.

According to the general partners active in the region, much of the capital committed to their recent funds has been generated by local investors. “Most of our investors are GCC-based. These investors are very bullish about the region and are seeing more potential in investing in the Middle East than in Europe or the US,” says Nabil Triki, an executive partner and head of private equity at Swicorp, which launched three new fund vehicles targeting the MENA region in 2005.

“If we consider the regional outlook, with a couple of obvious exceptions, the Middle East has been stable and consistent politically for many years. This is our home, remember. Where investors from outside may see risk, we see manageable and exciting opportunity,” says Naqvi.

How well this new and larger set of Middle Eastern private equity funds performs is likely to have at an impact on whether and when overseas GPs – and investors – will move into this market. Some investors have already gained exposure to the region, such as Citigroup Venture Capital International, one of the international institutions that invested in Abraaj’s ABOF II.

Most MENA-focused GPs see it as only a matter of time before the interest in the region spreads beyond its borders, at which point they expect a meaningful shift in investment conditions. “As more foreign private equity firms come in, they will bid up the price of assets and bid up the price of talent, which is already scarce,” says Naqvi.

Until that day arrives, the GPs who are already active in the Middle East intend to take advantage of the current window in which to extend their first-mover advantage.