MENA managers moving away from LP-GP private equity model

By Kamran Anwar

At a recent session during the annual IFC global private equity conference, industry leaders, including SS&C GlobeOp, discussed the fate of the traditional LP-GP private equity model in MENA and the recent growth in technology and venture capitalism (VC) deals in the region.

Below are key highlights discussed during the session:

More firms and companies are investing in the region’s tech sector. Yet with lower oil prices, capital is scarce. Of the capital that is available, it’s being used to support government expenditures, which impacts the current account and the historical investable surpluses.

The Maghreb, northwest Africa and coastlands of the Atlas Mountains of Morocco, must be thought of differently than MENA in terms of demographics and opportunities. For example, Algeria, the second largest supplier of natural gas to Europe, is just now opening up its economy. As pressure for privatization increases, there will be more opportunities for private sector participation. The development of the broader system (regulations, skills training, etc.) must develop in tandem.

Single country PE strategies are appropriate and possible in Egypt, since it’s a mature market with a deep commercial base and a history of private enterprise. Overall, there are low penetration rates of PE capital versus regional GDP in the general MENA region. A panelist noted that a lot was lost in pure statistics out of the region. For instance, many family offices regularly buy and sell companies which in many ways acts as a quasi PE capital play indicating that there is regional experience in doing deals.

There are comparatively lower returns from PE investments in MENA versus the rest of the emerging markets primarily due to:

  • Lack of sufficient critical mass of deals where a portfolio return is possible
  • Long gestation periods
  • Long time to close deals

Availability of skills sets and resources were also a key part of the panel discussion since it’s difficult to import talent to the region. It was agreed that there is a need to endow a chair or classes with the local universities that teach PE as a discipline to increase the pool of resources available to the industry at large.

SS&C GlobeOp private equity delivers a broad range of scalable, technology-enabled fund administration services. Our team of more than 600 accounting experts service more than 300 clients across the globe encompassing 2,000+ funds and $450B+ in committed capital. For more information or a demo, please download our brochure or contact us at 800.234.0556 or solution@sscinc.com.

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