Co-investment strategy gains popularity, especially in the Middle East

16 Oct

Limited Partners (LPs) from the region increasingly prefer co-investment or direct investments and demonstrating less appetite for blind pools, Deloitte’s sixth Mena [Middle East and North Africa] Private Equity Confidence Survey showed.

“GPs remain optimistic towards continued long-term growth prospects in the Mena region; however, as the industry enters a new investment cycle and LPs increasingly consider direct or co-investment options as a viable alternative to blind pool investing, the focus on exits is critical,” said Chris Carney, Assistant Director, Deloitte Corporate Finance Ltd in the Mena region.

A recent survey of sovereign investors by Invesco showed a significant number of Middle East sovereign investors are looking to build their own in-house expertise in investing in alternative asset classes such as private equity and the strategy included direct or co-investing.

“A more sophisticated approach, including the growing trend to use vendor due diligence, will improve individual asset returns and safeguard future funding,” said Carney.

Whilst GPs have continued to deploy capital, regional fundraising has been limited since 2007. Many funds are now running short of cash reserves. The Deloitte survey results suggests that the majority of traditional PE funds in the region, (i.e. those not backed exclusively by High-net-worth individuals (HNWIs) or government money), will be looking to raise new capital within the next 12 months.. Whilst 41% of respondents did not foresee any significant issues in fundraising, there is caution amongst LPs including family offices who were in some cases disappointed by return from PE funds in recent years, and skepticism remains in committing new capital to those who have little more than unrealized gains to demonstrate a track record.

Deloitte’s survey also showed that from a regional industry perspective, there is a general preference towards defensive investments. Around 34 per cent of respondents indicate a preference towards retail and consumer businesses including food and beverage. There is, however, also recognition that the favorites such as education, healthcare and oilfield services are now very competitive.

While family offices are expected to emerge as the most active investor base of the industry, LPs are expected to be more active in investment decisions. On exit front, the survey shows the most common exit route is expected to remain a trade sale to a strategic buyer; however, with global equity markets rallying to new highs, nearly a third of respondents see exit via Initial Public Offering (IPO), either on a regional or international exchange, as both viable and their most likely option within the next 12 months. This represents a significant increase on last year.

Click here to download the survey:


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Posted by on October 16, 2013 in Investments


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