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22 February 2024

Western pension funds eye Mena equity

By Nitin Nambiar



Private equity funds based in the Middle East and North Africa (Mena) region will be the next target for Western pension funds and endowments, top industry executives have said.
"The Mena region is becoming the fourth centre [after the US, Europe and Asia] of global private equity investing globally out of the region, and attracting global funds to invest locally," said Dr Karim El Sohl, chief executive officer of Gulf Capital, a UAE-based investment firm.
Speaking to Emirates Business on the sidelines of the Meed Private Equity Conference in Dubai yesterday, Dr El Sohl said the average fund size in the region had witnessed a huge leap in the last four years.
"Larger private equity funds have been set up from the region and for the region, targeting larger transactions. Last year saw the launch of a fund in excess of $1bn and the closing of a $1bn transaction," said Michael Lee, CEO of Bahrain-based Ithmar Bank.
The Carlyle Group said last year it plans to invest around $1bn in the Mena region in the next three to five years. Deutsche Bank partnered with Abraaj Capital for its $1.4bn 'Infrastructure and Growth Capital Fund' for providing acquisition finance launched in 2006.

The fund will have a holding period of 10 years. Intel Capital raised $50m for its Middle East and Turkey Fund in 2005. The UK's 3i set up a partnership with Dubai-based Ithmar Capital for its Fund II portfolio launched in 2005. "The growing size of funds and transaction deals over the last five years means private equity in the region has become an established asset class," Dr El Sohl said.

"Funds from the region are now well and truly plugged into the global network and there's increased sophistication from regional players who are attracting global funds for regional investment," said Faisal Belhoul, Founder and Managing Partner of Dubai-based Ithmar Capital, which will launch its $1bn Fund III portfolio in the fourth quarter of this year.

Funds in the GCC region can deliver a IRR, or internal rate of return - the interest rate at which a certain amount of capital today would have to be invested in order to grow to a specific value at a time in the future - of 30 to 40 per cent to investors, which makes it significantly better than investment vehicles investing in some other regions, according to Dr El Sohl. Belhoul agreed that with current dynamics as strong as they are, funds can look to achieve an IRR of 30 to 40 per cent.

According to Zawya.com and Gulf Capital data, control buy-outs accounted for 43 per cent private equity deals in the Mena region last year, followed by strategic minority stake acquisition (26 per cent) and minority financial investment, which accounted for 17 per cent of total private equity investments in the Mena region last year. Private equity returns from the Mena are expected to outperform global returns this year, executives said.
According to a survey by the Emerging Markets Private Equity Association last year, the average net IRR for private equity commitments in the Middle East stood at 22.8 per cent. The average IRR for commitments in the US was 17.2 per cent and 23.1 per cent in Asia.