x Abu Dhabi, UAEFriday 19 January 2018

Gulf Capital gets fund commitments

First private equity firm in the region to raise most of the capital from overseas investors.

Gulf Capital, a buyout firm based in Abu Dhabi, has secured Dh1.75 billion (US$476.6 million) in commitments for a new fund, largely from international investors, at a time when global private equity fund-raising has slowed sharply. The Dh1.75bn raised for Gulf Capital Equity Partners II is the most announced by a private equity firm in the GCC so far this year, according to figures from Zawya, a Middle Eastern financial information provider. It tops the $250m raised last month by the ADIC-UBS Infrastructure Investment Fund I.

Gulf Capital's fund is the first private equity fund in the region to raise most of its capital from international investors, according to a Gulf Capital statement. The firm, founded in 2006, said two thirds of its investors were from outside the region. "We have exceeded the Dh1.75bn level in probably the toughest of fund-raising times," said Dr Karim el Solh, the chief executive. "This is a testament that the region is still growing and that investors believe in the region and are willing to put money behind the region."

Private equity fund-raising in the US declined by 18 per cent last year compared with 2007, according to Dow Jones Private Equity Analyst. Private equity fund-raising in the Gulf, however, has shown signs of resilience, rising last year by 10 per cent to $6.4bn, a Gulf Venture Capital Association report said in March. Even so, there has been a noticeable slowdown this year as managers switch focus from raising capital to helping businesses in their existing portfolios weather tough economic times.

"This is a year of caution," said Ali Arab, a private equity analyst at Zawya. "PE firms are more concentrating on sourcing deals and taking care of their portfolio companies instead of raising new funds. There is enough dry powder to invest in such a situation where stabilisation is taking place. Many funds that have raised their money in the last two years are looking closely to invest but they are waiting for the right moment where the valuations are realistic to them."

Gulf Capital was helped by proprietary money. It said it put Dh550m of its own capital into the fund. The company also formed a relationship with Credit Suisse Alternative Investments to market the fund to large international investors including pension funds, insurance funds, endowments and sovereign funds in Europe, Asia and the Americas. As a result, two thirds of the money raised came from sources outside of the GCC, Dr el Solh said.

"We wanted to set up a fund that would allow international investors to find a gateway into the private equity sector in the region," said Muhannad Qubbaj, the managing director of business development at Gulf Capital. Dr el Solh said fund-raising for the fund was continuing and the company hoped to secure commitments of between Dh2bn and Dh2.25bn by the end of this year, when it would close. If successful, the firm's total assets under management, including proprietary funds, would rise above $1bn, he said.

The new fund has already been seeded with two companies that Gulf Capital acquired in 2007: Gulf Marine Services, an offshore contractor in the UAE, and Ma'arif, a private owner of schools in Saudi Arabia. Dr el Solh said two other deals were about to close, one in the healthcare sector and another in the food sector. While private equity managers may be taking a more cautious tack during the downturn, many are still searching for deals.

Some are looking for distressed assets as companies battered by the financial crisis look to cash out and restructure while others, including Gulf Capital, are looking across the region for established companies with solid potential for regional expansion. Many firms in the UAE and elsewhere are also eyeing Saudi Arabia as a key regional growth market in which to invest. Officials at Gulf Capital said they were spending more than half their time looking at deals in Saudi Arabia. Abraaj Capital, the Middle East's largest private equity firm, said this week that it had established an office in Saudi Arabia, the GCC's largest economy.