Abu Dhabi, UAESaturday 24 August 2019

Gulf Capital CEO optimistic about 2019, even as fundraising challenges persist

Karim El Solh urges companies to strengthen internal controls after the Abraaj Group collapse

“We are looking more in the e-commerce space, new industries like entertainment and tourism in Saudi Arabia. I guess if you pick the right sector you will find growth and it’s not all doom and gloom [in the Gulf region],” he said. Lee Hoagland / The National
“We are looking more in the e-commerce space, new industries like entertainment and tourism in Saudi Arabia. I guess if you pick the right sector you will find growth and it’s not all doom and gloom [in the Gulf region],” he said. Lee Hoagland / The National

Gulf Capital, one of the largest venture capital firms in the Middle East with more than $3 billion of assets under management, is eyeing investments in high-growth sectors such as e-commerce and logistics, where it sees attractive returns despite a challenging environment for private equity, its chief executive said.

“Personally, I'm very excited about 2019,” said Karim El Solh, who is also co-founder and managing partner of private equity at the Abu Dhabi-based firm. “We're seeing more deal flows, more interesting companies in new sectors, at very attractive multipliers, and for me that’s what makes a good vintage.”

Last May, Gulf Capital acquired a strategic stake in financial technology (FinTech) firm Saudi Geidea, an electronic payments provider, for more than 1 billion Saudi riyals (Dh980 million), among other investments.

“This year, we’re looking further at the e-commerce and technology sectors, we’re looking at logistics and consumer, we’re still focusing on healthcare and education, and there are sectors we never dreamed of before – like tourism and entertainment in Saudi Arabia – so you are seeing the new economy rising [in the region] and it’s very exciting,” Mr El Solh told the Mena Investment Congress in Abu Dhabi on Thursday.

Gulf Capital has made five technology investments to date and is actively seeking more in 2019, he added.

The number and value of private equity deals in the Middle East and North Africa has declined steadily since 2014, to 17 deals totalling $350m in 2017, according to figures compiled for The National last September by alternative assets data provider Preqin. Between 2014 and 2015, the number and value of deals more than halved, as a drop in oil prices hit the region’s hydrocarbon-dependent economies, impacting multiple industries including PE, with the value of exits falling to $52m in 2017 from $1.9bn in 2014.

In addition, the collapse last year of Abraaj Group – once the Middle East’s biggest buyout firm with almost $14bn of assets under management at its peak – has sparked increased caution among private equity investors, and made it harder for PE firms to raise funds. Abraaj has faced a liquidity and reputational crisis since some of its investors alleged mismanagement of funds last February and hired investigators to find out where their money had gone.

The firm has been undergoing a court-supervised restructuring since June and trying to sell off parts of the business to pay down an estimated $1bn of debt. Among the allegations it faces are that it ‘commingled’ funds – mixed investors’ money with the company's operating funds – without disclosing this to them. Abraaj denies any wrongdoing.

Mr El Solh told delegates the Abraaj scandal “has not done anyone any favours”, and that it is more important than ever for PE firms and asset managers to demonstrate corporate transparency to investors and the market.

“Fundraising will be very difficult this year,” he said. “It was already hard and now, [after Abraaj], it will be even harder. We are trying to show that actually you can invest in the region, that it has good managers, good governance and good controls, and at Gulf Capital we’ve invested more and more in this space.”

The firm will publish its first-ever controls report this year showing the flow of funds and how money is spent – something that is not common practice for Middle East firms – and it has shifted to quarterly rather than annual reports. More than half of Gulf Capital’s investors are global, and they expect asset managers to adhere to international standards and procedures.

“We are now over-reporting, over-interacting, over-communicating and it’s expensive and arduous, but we need to do it,” Mr El Solh said.

Updated: February 22, 2019 09:40 AM

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