GCC lays out strong private equity landscape for 2014
December 16 2013
Imad Ghandour of CedarBridge Partners
I usually don't try to predict investment cycles as it is at best an inexact science, but the positive telltale signs over the past few weeks all point towards a great 2014 for private equity in the GCC.
Over the past five years, the private equity industry in MENA has been hit by financial and political tsunamis that effectively reduced the fund raising and investment activities by around 85% to 90% from its peak in 2007/8. Although one can argue that the 2007 peak was an exuberance that will not be repeated, the bottom line is, that fund raising was nevertheless difficult - significant investment opportunities were scarce, bank financing evaporated, and unfortunately, many of our colleague fund managers downsized or disappeared.
Fortunately for the survivors of these grim years, it seems that the investment cycle is on an upturn. Most of the experienced managers blazing on the fund raising trail have reported good traction. The first to break publicly the good news was NBK Capital, which announced a first closing of USD 217 million for its second PE fund. Privately, no less than four other funds have disclosed good traction in fund raising and some first-closing of their funds.
Local investors who have been shy to invest since 2008 are now also trickling back into investing in private equity. Liquidity in the region has been growing at phenomenal rates. At the macro level, for example, M2 money supply in Saudi Arabia has reached an all-time high of SAR 1.3 trillion in October 2013. On the micro level, family offices around the GCC are reporting record levels of cash seeking returns higher than the meager interest rates offered by banks. As a result, local investor shyness is starting to fade, but they are demanding a locally customized version of the standard western PE model. For example, a growing number of local fund managers are offering dividend yielding strategies to attract local investor - a feature disliked by their international counterparts.
BUOYANT ECONOMYThe GCC and many other countries in the MENA have maintained positive economic growth since 2009, although such economic track record received very little credit so far. However, this economic growth coupled with political stability is starting to receive greater recognition from international institutional investors, who are now trickling back to the region. Most of the fund-raisers have mentioned significant interest from a selected group of avant-garde international institutional investors - up from almost zero a couple of years ago.
In the light of the Brazilian economic winter and the Indian rupee yoyo, the GCC in particular has sharpened its image as an economically stable region. Even US institutional investors are starting to see the virtue of investing in the faraway lands of Arabia where petro reserves ensure economic stability and local currencies have been eternally pegged to the all mighty US dollar.
The recent political events have relieved the accumulated tension in the region, and the war cries are now being replaced with more peaceful tunes. The war in Syria seemed to be now contained and hopefully on the way to getting resolved. Whatever will be the form of the Iranian grand deal or the Syrian peace deal, peace with Iran and the end of war in Syria are good for business and investment. Stability will bring more prosperity, and more prosperity will bring even further stability.
And the aura of optimism is not only emanating from the region but also shared globally. The Financial Times has recently highlighted that the world is now moving on all its big economies cylinders from the US to China to Japan to Germany. For the region, this means greater demand for energy and maintaining oil prices at least at the current levels.
For all the above reasons, the surviving private equity mangers in the regions, having showed their rigor in the down turn, will deliver great success stories in the looming upturn.
Imad Ghandour is co-founder of CedarBridge Partners and MENA Private Equity Association.
Imad GhandourImad Ghandour is the Co-founder & Managing Director of CedarBridge, where he focuses on investing in growth companies in MENA region.
Imad has more than 10 years experience in private equity and investments throughout the Middle East and China, and specializes in the educational and healthcare sectors.
Imad is currently a director in the board of Kids First Group, the region’s largest chain of nurseries, and CIRA, the largest chain of schools in Egypt. Previously, he was a director in Maarif Education, the largest educational group in Saudi Arabia, TechnoScan, the largest chain of radiology centers in Middle East, and Advanced Laboratory Services, a reference lab in Saudi Arabia.
Imad is also a co-founder of the MENA Private Equity Association, and was awarded by Private Equity World the prestigious Private Equity MENA Merit Award for 2011.