Study: LPs expect cleansing shakeout of MENA managers

A white paper co-published by PEI and Al Masah Capital shows a growing number of international LPs recognise the potential of investing in post-crisis private equity funds in the MENA region.

Private equity fund investment in the Middle East and North Africa remains a minority activity among institutional investors, but a growing number of LPs globally are beginning to recognise the region’s medium- to long-term potential.

This is one of the findings of a new study co-published by PEI and Al Masah Capital, a private equity investment group based in Dubai.

Entitled The Final Frontier: An Investor Perception Analysis of MENA Private Equity, the white paper shows that the average capital allocation of investors to MENA is forecast to increase from currently 1 percent to 1.6 percent over the next two years. Among the key drivers of the trend is a growing awareness among LPs of the region’s promising macro-economic fundamentals and demographic change.

The paper also shows that investors view the global financial crisis in general, and Dubai’s recent difficulties in particular, as having accelerated the shake-out of subpar private equity fund managers in the region.

According to PEI’s research, LPs are finding it difficult to judge the performance of MENA private equity funds they have already invested in. “Too early to tell” was a frequently made comment during the research process, whilst several respondents also predicted that many existing funds would underperform.

Fund manager consolidation is therefore widely seen as a positive trend, as it will enable the surviving funds and also some new entrants to build a more viable private equity industry in the region, with a new crop of stronger managers beginning to emerge already.

Shailesh Dash, chief executive officer of Al Masah Capital, which sponsored the research, said: “The white paper makes clear that the drastically changed economic environment has prompted what is generally regarded as healthy Darwinism in terms of MENA fund managers. The region’s private equity industry is expected to emerge leaner and meaner, with greater ability to address many of the manager-specific investor concerns the white paper has highlighted.”

The Final Frontier: An Investor Perception Analysis of MENA Private Equity is based on in-depth interviews with 53 international institutions with a combined $256 billion of capital allocated to private equity.

The white paper is available to download at www.peimedia.com/MENA.