Gulf’s apart

An Abu Dhabi-based group hopes the unusual structure of its AIM-listed vehicle will persuade more European LPs to start investing in the Gulf region again, writes James Taylor

There was a time when the Gulf region was a hotspot for international investment. But when the financial crisis brought Dubai’s house of cards crashing down, investor enthusiasm unsurprisingly waned. In 2008, three firms in the region closed funds totalling $1.6 billion between them, according to PEI’s Research & Analytics division. Last year, the figure was precisely zero.

One group challenging that perception is Abu Dhabi Capital Management, which focuses on opportunistic deals and special situations in the MENA region, and particularly the Gulf (although it’s recently been in the news in the UK because of its take-private bid for UK high-end property developer Northacre).

According to chief executive Jassim Alseddiqi, the Gulf has been steadily recovering in the last few years – and the Arab Spring has helped that process to an extent, because the Emirates has been relatively unaffected compared to some of its near-neighbours. What’s more, he argues, the fundamentals of the GCC region – demographics, population growth, government spending, investment flow etc. – remain extremely robust. “It’s always been a destination for capital, but now there are great investment opportunities as well. Investors are trying to increase their footprint in the region, because you get emerging market returns with mature market risk. And it’s tax-free.”

It’s still very early days; ADCM has only been around for just over two years. But it’s off to a good start: the first exit from its listed fund, investment company Al Waha Capital, yielded an annualised return of 87.9 percent.

ADCM has also developed an unusual fundraising model. The group started off raising blind pools – including a MENA secondaries and an opportunistic real estate fund. But now it focuses most of its capital-raising efforts on Quannas Investments Limited (QIL), a vehicle listed on London’s Alternative Investment Market – which has some very investor-friendly features.

With QIL, ADCM only raises as much money as it needs to complete the deals at an advanced stage in its pipeline. So at press time, it was in the advanced stages of securing around £20-£25 million, which it planned to put to work immediately – the idea being that all the capital raised would be deployed by early May. 

What this means in practice is that QIL can largely eliminate cash drag, while also providing investors with a greater degree of transparency (because investors effectively get to see what they’re buying before they commit). There’s also no management fee. So QIL neatly avoids three of the biggest drawbacks for investors in blind pool funds. 

Of course, it’s a moot point whether a Gulf-based firm like ADCM would be able to raise a blind pool fund at the moment, given how risk-averse most LPs are at the moment. So necessity may (in part) be the mother of invention here. It’s also at the small end of the private equity scale: QIL is not allowed to invest more than £10 million in any one deal.

However, it’s also true that – especially in the current climate – many investors are seeking lower fees, more transparency and better liquidity options than a blind pool fund typically provides. By basing its investment model around a vehicle like this, ADCM may just be providing a glimpse into the industry’s future. Although as ever, its success will depend on whether it can deliver results consistently over a period of time.