MENA managers moving away from LP-GP private equity model

By: Kamran Anwar

At a recent session at the annual IFC global private equity conference, industry leaders, including SS&C GlobeOp, discussed the fate of the traditional LP-GP private equity model in MENA and the recent growth in technology and venture capitalism (VC) deals in the region.

Here are some highlights from the session:

  • More firms and companies are investing in the region’s tech sector.
  • With lower oil prices, capital is scarce. Available capital is being used to support government expenditures, which impacts the current account and the historical investable surpluses.
  • The Maghreb must be thought of differently in terms of demographics and opportunities. For example, Algeria (the second largest supplier of natural gas to Europe), is just now opening up its economy. As pressure for privatization increases, there will be opportunities for private sector participation there. The development of the broader system (regulations, skills training, etc.) must develop in tandem. 
  • Single country PE strategies are appropriate and possible in Egypt, since it is a mature market with a deep commercial base and a history of private enterprise. 
  • There are low penetration rates of PE capital versus regional GDP in the region. A panellist noted that a lot was lost in pure statistics out of the region. Many family offices regularly buy and sell companies which in many ways acts as a quasi PE capital play; there is regional experience in doing deals. 

There are comparatively lower returns from PE investments in the region versus the rest of the emerging markets. This is due to:

  • Lack of sufficient critical mass of deals where a portfolio return is possible
  • Long gestation periods
  • Long time to close deals

Availability of skills sets and resources were also discussed; it is difficult to import talent to the region. It was agreed that there is a need to endow a chair or classes with the local universities that teach PE as a discipline to increase the pool of resources available to the industry at large.

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