PE firms have enough funds to put to work despite crisis

Fundraising and secondary advisers to the private equity community have benefited from the financial crisis. This is because the complexity of financial matters these days has led more and more clients to seek advice, says Antoine Dréan, Founder, Chairman and CEO of Triago, Europe's first independent private equity placement agent.

Dréan said the Middle East remained "rich" and a source of enormous liquidity. "There is money coming out of the ground every day," he told Emirates Business.

"There was over-leveraging in some countries and companies. This needs to be treated and that is what happening now. It doesn't mean that people are completely broke, it means there is a mess that needs to be taken care of before they invest again."

But there will be casualties in the sector. "Are some players going to disappear? Yes, absolutely. It was very difficult to tell who was good and who was not. Now it is getting easier to differentiate between the two.

Some of the bad ones will have to leave the scene."

What are your interests in the region?

As agents, we help funds to raise money and investors to sell pieces of funds. We are doing $1 billion (Dh3.7bn) to $2bn a year worldwide and 10 to 15 per cent of our activities are here in the region. Even though we opened an office here in 2007 we've been doing business here since 1992 and we started raising money from Middle East investors pretty much from the start. At that time, for private equity [PE] firms, money was here and in the US and there was close to none in Europe. The idea 17 years ago was to help PE groups in Europe to raise money from third-party investors. At that time almost every PE fund manager in Europe was captive to an insurance or bank company and it was difficult to find money then.

Do you still see a huge appetite for investment in the Middle East?

Yes, that has been the case since the early days. A lot of people here have been investing in PE for 20 years, they know their way in PE and are very sophisticated in terms of what and what not to do. Everyone's more cautious today so some are watching but not yet putting money to work. But some are selling, which is good for our secondary business. At the same time there is almost the same amount of money available from this region because you also have a lot of new players.

A lot of people regard PE as the saviour of some beleaguered firms. Is it?

Maybe. It remains to be seen but at least these guys [PE firms] have an enormous amount of money – like a trillion dollars of firepower – to put to work. Secondly, they are used to buying special situations, so what is going on right now is pretty much business as usual. That $1trn has no leverage so if you take leverage into account the buying power is obviously much greater than that.

How would you characterise the region?

It's rich. There is money coming out of the ground every day. There was over-leveraging in some countries and companies. This needs to be treated and that's what's happening now. It doesn't mean that people are completely broke, it means there is a mess that needs to be taken care of before they invest again. You're hearing a lot about overleveraging in this country because this place is probably loaded with debt, mostly on the real estate side, but it will be taken care of.

A lot of people are pinning their hopes on this region. Don't you think their expectations are somewhat exaggerated? How big are the opportunities for PE in the region?

Huge. Most PE shops opened their doors in 2003 and 2004 and most of them have known only the ups and not the downs and now they have difficulties with their portfolios. But at the same time they have the money to invest and there are promising sectors like healthcare, infrastructure and education.

Some sectors like real estate, telecom and banking have begun to consolidate. Will there be consolidation in PE? Does the structure of private equity allow consolidation?

It depends what you mean by consolidation. Are some players going to disappear? Yes, absolutely. As I said, it was fairly easy to make money in this business a few years ago because of the credit bubble. It was very difficult to tell who was good and who was not. Now it's getting easier to differentiate between the two. I'm positive some of the bad ones will have to leave the scene.

This will leave the space with fewer players. But consolidation as in merging? That I'm not sure about because it's a people business. But I think it's still a possibility as long as the companies that merge have different strategies. For instance, I know of a few groups in Europe or the US who are trying to expand by buying turn-around groups or mezzanine funds.

When will PE start investing?

It depends on the strategy. Some are doing it now. If you're running a turn-around fund it is a very good moment to put money to work. If you are managing a large buy-out group then it's a completely different story because there is no leverage available, especially for very large deals. Pricing-wise, it's not that great yet. Prices are starting to go down but it may still be another six to 12 months before prices are low.


PROFILE: Antoine Dréan Founder, Chairman and CEO of Triago

Dréan founded Triago in May 1992. His idea was to help European PE fund managers raise money from third-party investors in North America, the Middle East and parts of Asia. Triago was the first placement agent in Europe and one of the very early ones in the US. It has raised more than 130 funds all around the world and has advised on the transfer of more than 800 fund interests.

Today Triago is a world leader in PE fundraising and secondary transfer.

The company has offices in New York, Paris and Dubai and has been active in 38 countries. It employs 32 people from 14 different countries. Triago is an independent firm owned by its partners.

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