Page 101 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 2 Entrusted Stewards 85

other actors is often quite limited. This environment of imperfect
information can create advantages for actors who have greater access
to information than their rivals and counterparties do, but overall it
makes the investment process less efficient and more speculative. In
addition, there are often significant constraints associated with
investment structuring and ongoing operations, especially when
portfolio companies are family enterprises. Established stakeholders
often retain significant control, and conditions can be placed on mat-
ters such as the appointment of key executives, ongoing support for
pet projects, and the like. Outside buyers investing in such assets
need to be aware of the environment that they are entering.
Finally, although all post-WTO Gulf states are opening up various
sectors of their economies, regulations that limit foreign ownership in
key industries are still in place today. Thus, PE and VC funds that are
domiciled in offshore centers and have international shareholders may
be barred from taking majority stakes in otherwise attractive compa-
nies. Furthermore, employment laws and other requirements may
make it difficult to implement the type of sweeping organizational
changes that buyout firms often seek as value-creating strategies in
their portfolio companies.

Fund Managers Are Driving Increasing Intraregional Investment
Regional PE and VC funds have played an important role in driving one
of the key overall trends related to Gulf capital: an increased focus
on intraregional investment. Whereas a number of key pioneers in
the region’s PE and VC sector, such as Investcorp and Arcapita, have
focused almost exclusively on making investments in the West and the
broader OECD market, the generation of firms established in the past
decade focuses largely on investment opportunities within the Middle
East. A number of this decade’s most prominent firms—Abraaj Capital
(UAE), SHUAACapital (UAE), Global Investment House (Kuwait), and
others—have made their most successful investments in the Middle
East region. Within this category of MENA-focused funds, Egypt has
been the single largest target market for acquisitions. Figure 2.6, also
drawn from the Gulf Venture Capital Association’s analysis, shows the
breakdown of investments by country.
Egypt’s appeal is not surprising, as it is by far the largest Arab
market by population and thus is fertile ground for consumer-facing
and population-driven businesses. A reported 73 percent of MENA
PE exits have been through either IPOs in Egypt or sales to Egyptian