Levant Capital is confident it will be among those to benefit from the shakeout currently underway among Middle East and North Africa-focused fund managers.
That is in part due to track record. The Dubai-headquartered firm recently recorded a net internal rate of return of more than 40 percent on its minority investment in APR Energy, a US-headquartered provider of temporary power plants to emerging markets, meaning it has now returned 115 percent of all contributed capital from the $200 million debut fund it raised in 2007.
Given Fund I is about 75 percent deployed, the exit comes as the firm is expected to launch a fundraising that would double its assets under management. Levant declined to comment on fundraising plans.
The firm’s independence – it is owned completely by its partners – will also help it to succeed where other groups have not, asserts chief executive Salameh Sweis. “During the crisis we saw a lot of cases where for bank-owned peers or peers controlled by specific investors, the goals changed over time and managers left during [funds’] investment periods.”
During the crisis, the number of private equity investors and AUMs sort of dwindled.
A reduction in private equity firms has been good for the industry, he says. “During the crisis, the number of private equity investors and AUMs sort of dwindled. Now there are fewer managers chasing after more deals. Independent management-owned [companies] are under severe pressure to compete … and need capital and knowhow to scale.”
Despite the opportunity set for the fund managers left standing in MENA, fundraising will be no easy task. The region’s private equity groups have traditionally relied on domestic LPs, particularly family offices, to fund their investments. But just like Western GPs, post-financial crisis, MENA’s private equity practitioners were forced to make concessions to limited partners struggling with liquidity issues – putting paid to the notion that the region’s investors had a limitless supply of cash. And, perhaps more so than any other LP type, family offices’ allocations to the asset class have proved fungible, adding an extra layer of difficulty.
Attracting institutional capital from international LPs is also challenging. A global LP survey undertaken late last year by PEI, whose full findings were published in a white paper entitled “The Final Frontier: An Investor Perception Analysis of MENA Private Equity”, concluded that MENA private equity will continue to find itself competing with other emerging markets and must deliver returns in excess of 20 percent to attract a greater share of global capital. As one LP put it, MENA private equity will be judged “in the round” with its emerging market competitors, particularly Asia.