Investcorp plans second regional private equity fund following its HarbourVest deal

Alternative asset manager is initially targeting a size of $300m to $500m for the investment vehicle

Abu Dhabi, United Arab Emirates - Reporter: Michael Fahy: Walid Majdalani from Investcorp. The Milken Institute summit focusing on the Middle East and Africa (MEA). Wednesday, February 12th, 2020. St Regis Hotel, Abu Dhabi. Chris Whiteoak / The National
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Bahrain-based alternative asset manager Investcorp plans to launch a second private equity fund targeting deals in the Middle East, North Africa and Turkey region this year.

The size of the fund is still under discussion, but the firm is initially looking at a vehicle worth $300 million (Dh1.1bn) to $500m, Investcorp's Mena head of private equity, Walid Majdalani, told The National in an interview in Abu Dhabi.

The decision to launch the new fund follows Investcorp's deal in October with US-based HarbourVest Partners to invest in an $866m regional portfolio held by the Manama-listed firm, as well as providing $70m for follow-on-investments and $60m for new investments.

The transaction injects liquidity into Investcorp's portfolio, allowing existing investors an option to exit.

"We are also rolling over Investcorp’s own money from the deal into that additional pool to raise a fund”, Mr Majdalani said.

The HarbourVest transaction is still subject to regulatory approvals and Investcorp plans to raise its new Mena fund after its completion. The deal follows a similar Investcorp transaction with London-based Coller Capital last year that allowed it to create a $1bn European private equity fund.

Investcorp has $31.1bn of assets under management as of December 31, 2019, according to its half-year accounts. Its private equity assets account for $6.4bn of the total AUMs.  About 22 per cent of its PE portfolio is spread across the Menat region, while North America, Europe and Asia account for 38 per cent, 30 per cent and 10 per cent respectively.

Investcorp, which counts Abu Dhabi's strategic investment firm Mubadala Investment Company as its biggest shareholder, launched its first Menat fund in 2007, raising about $900m. It was fully deployed by 2013, but Investcorp has continued to make investments on a deal-by-deal basis. The company has made 16 private equity investments in the region to date, and secured five exits — with a sixth due to be announced soon, Mr Majdalani said.

“The focus is on mature and growing industries, and leading family businesses within those spaces,” he said. “In the past 12 years, we have positioned ourselves to being the first non-family partners to those family businesses on their board to help them grow — either through acquisitions or growing geographically.”

Investcorp has also backed 15 follow-on investments in its regional portfolio of firms, which largely operated in the retail and consumer; transport and logistics, industrial services and healthcare sectors.

For the new fund, Investcorp sees “the exact same opportunity of 12 years ago, where we still see growth in those particular markets”, Mr Majdalani said, adding it would also target companies in the education sector.

“That was part of our initial thesis … but from the investments we’ve done so far we haven’t been able to identify an asset which would fit our criteria. We think that will change,” he said.

Investcorp enjoys a competitive advantage in the regional private equity space where it competes with three major sources of funding — family offices, local institutional investors and International investors.

Family-owned businesses, he said, are often reluctant to “open up the crown jewels” to other families and appreciate the governance structures an external investor brings on board.

He also argues that many local institutions lack the “depth of access” it has to advisers, portfolio companies and markets in other parts of the world, while many of the international investors lack a meaningful Middle East presence, he said.

“Managing a Saudi company out of London, coming in four times a year for them, that will also not work. You need to be on the ground," he explained.

The region's private equity market has shrunk since the 2008 financial crisis. At one stage, more than 100 private equity firms operated in the region but that number has shrunk to "about a dozen, essentially", Karim El Solh, the co-founder and chief executive of Abu Dhabi-based Gulf Capital told The National last month.

Some of Investcorp's competitors have "disappeared and reappeared again", Mr Majdalani said, adding that its longevity has given it credibility with both its investor base and its portfolio companies — "because we’re from the region originally and we manage to remain here as well".