Page 100 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

84 PART I Background and Context

The overall economic outlook for the region—especially when
compared to that for other markets worldwide—remains strong,
suggesting ongoing potential for profits and earnings growth for
portfolio companies. As discussed earlier, there is a major trend
underway toward the restructuring of conglomerates and family
enterprises, especially as family offices are institutionalized and new
generations take positions of leadership. The “rationalization” of
business portfolios—focusing on core areas of expertise and shed-
ding businesses that don’t fit—can lead to many promising private
equity investment opportunities. In addition, governments and pub-
lic institutions are increasingly stressing the importance of entrepre-
neurship by young nationals. Small and medium enterprise (SME)
funds have been established specifically to support such businesses,
and major foundations like the Mohammed Bin Rashid Foundation
and the Qatar Foundation actively promote entrepreneurship. In the
UAE, for example, the fund Alf Yad (which literally means “1,000
hands”) has been established as a for-profit fund with a broader
social mission. To quote the fund:

The premise behind the name is that over the course of ten years, Alf
Yad’s 1000 investors will have directly contributed towards the Arab
Economy and shall constitute the “one thousand hands” that will
invest capital and enable privately held businesses to flourish. 51

In addition to efforts that specifically target entrepreneurship,
ongoing investment by GCC governments in establishing universi-
ties, research facilities, and other “knowledge infrastructure” helps
to foster an environment conducive to creating new businesses.
These businesses can become attractive investment opportunities for
Gulf-based private equity and venture capital firms in the years
ahead.
At the same time, the unique constraints associated with princi-
pal investments in the region should not be underestimated. As men-
tioned earlier, capital markets are not yet mature, and therefore plan-
ning exits via IPOs on local stock exchanges is not entirely reliable.
According to industry research, only 30 percent of private equity
exits in the region between 1998 and 2008 were through IPOs—a
strikingly low figure indicating the uncertainty associated with seek-
ing a public exit. 52
Second, the information available in the market regarding the
performance of potential portfolio companies, their competitors, and