THE ANNUAL REVIEW 2010 - PEI Media

page 118 private equity annual review 2010
m e n a
Can MENA Private Equity 2.0
get started now?
Private equity in the region is set for a transformational
shake-out. According to onlooking limited partners,
that is entirely a good thing, writes Philip Borel
PEI’s research team spoke to more than 50
LPs from around the world from July to
September 2010, with the aim of identifying
their attitudes towards private equity in the
Middle East and North Africa. We captured
their post-global financial crisis thinking on
capital allocation, manager selection and
due diligence policies for the region for a
resulting white paper, The Final Frontier: An
Investor Perception Analysis of MENA Private
Equity.
The majority of private equity investors
we spoke to for the white paper expressed
caution as to the likelihood of their
launching a first-time investment effort
in MENA in the near future. Likewise
LPs that are already active in the region
described their appetite for expansion in
the region as currently limited. As our
findings relating to investors’ allocation
planning for MENA demonstrate, there
will be some new entrants, and an
increase in average allocation of private
capital competition
LPs’ mean percentage allocation to the asset class by region underscores MENA’s role as the
‘final frontier’ in attracting institutional commitments
Total private equity capital
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: PEI Media
1.0%
Mean allocation in 2010
1.6%
21.8%
17.9%
4.0%
4.1%
Mean allocation in 2012
MENA Asia CEE Latin
America
“Groups that didn’t
really know what
they were doing
were purged from
the system”
2.2% 3.2% 3.2% 3.7%
Sub-Saharan
Africa
74.6%
70.2%
Developed
markets
equity capital can be expected in the
next two years also. However, even those
institutions that are expecting to drive this
modest upward trend are bound to take
great care as they proceed, and work hard
in their due diligence to protect against
downside risk.
The white paper, which was sponsored
by Al Masah Capital, helped illuminate
why international investors remain
vigilant. MENA private equity is – rightly
– seen as one of the youngest and least
institutionalised segments within the asset
class globally. While the moment of its
creation may be hard to pin down with
much precision, most practitioners agree
that there is little more than five years of
relevant activity for students of alternative
investment history to look back upon.
Also, while MENA as an economic
region has attractions that limited partners
do recognise, such as its promising macropicture,
it is not a priority for LPs to
look for new investments in the region,
regardless of how interested in emerging
markets opportunities they may be in
general. As one European respondent
pointed out: “To go beyond markets like
China and even further into the emerging
markets, including MENA, we’d need to
identify the managers we’d want to work
with. To do this we would need more staff.”
hope, not expectation
What is more, almost all private equity
firms operating in the region today were
created during a frenzied investment boom,
amidst huge optimism and exuberance. In
hindsight, it wasn’t the ideal moment for
the birth of MENA private equity: when
the regional version of the global financial
crisis finally struck in 2009, the fallout hit
many of the first-generation general partner