Private Equity in MENA Region

Report Steering Committee
Fred Sicre Executive Director, Abraaj Capital Hossam Shobokshi Managing Director, Principal Finance - Private Equity, Standard Chartered Ihsan Jawad CEO, Zawya & Director, GVCA Imad Ghandour Executive Director, Gulf Capital & Chairman of Information & Statistic Committee, GVCA Dr. Pablo Fetter Director, Istithmar World Ventures & Member, GVCA Vikas Papriwal Partner, Private Equity and Sovereign Wealth Funds, KPMG
Special Thanks
Special thanks go to all those who contributed their time and effort to make this report possible, and include: KPMG Team: Dale Gregory, Liam Barry, Cynthia Chee, Mehmet Sait Gunes and Nauman Merchant Zawya Team: Jeanette Lepper and Ali Arab We would also like to thank all the sponsors for their support and all the survey participants.
TABLE OF CONTENTS
1.
Important notice
1.1 1.2 1.3 Basis of preparation Definitions and assumptions Data filtering
4 5 6 6 8 9 10 11 15 25 30 33 36 41 51
2. 3. 4.
GVCA introductory message KPMG introductory message Private equity in the MENA region
4.1 4.2 4.3 4.4 4.5 4.6 4.7 Summary Funds Investments Deployment of funds Regional focus Sector focus Exits and IRR
5. 6.
The future of private equity in MENA and the impact of the financial crisis Sovereign Wealth Funds in the MENA region
6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 Summary SWF profile SWF investments Sector focus Regional focus Exits Development in regulatory framework Whats next for SWFs
57 59 61 62 64 67 68 69 70 73 75 75 76 89 91 92 93 99 109
7.
Survey of GPs of the MENA region

7.1 7.2 7.3 Summary Highlights Survey results
8.
GVCA Gulf Venture Capital Association

8.1 8.2 8.3 GVCA Overview Board Members Members directory
9. 10.
Directory of private equity firms in MENA Sponsors Profiles
FOREWORD
By Hareb El Darmaki
The outlook for the global economy in general and the GCC economies in particular has changed dramatically in the past few months. The Gulf region continues to be influenced by the turmoil in many developed economies and, as a result, weaknesses in our local economies, financial institutions and commercial enterprises have been exposed. As the current financial crisis continues to unfold, the next few months will be difficult for all financial players including private equity. Commercial banks, investment banks, financing companies, and other financial players forming the backbone of the modern financial system will continue to uncover the impact of bad investments and impairment of assets, and will seek to redefine their business model to survive the flux of change. Private equity is no exception and 2008 data reveals a drop in activity within the region. Private equity is facing major challenges, and is invited to rethink its business model. Diminishing leverage, compounded by adverse economic conditions and more challenging exit strategies will put downward pressure on private equity houses as they seek to replicate previous years returns. However, private equity is not a short term play, and our investment horizon should extend beyond the current crisis. Particularly for the GCC, the economic fundamentals remain strong and are supported by aggressive fiscal policies. Governments reserves will continue to trickle down to the rest of the economy sustaining corporate profits and public investments. A sober market will offer better valuations, and hence better returns for private equity. Although the increased attention that the region had witnessed in 2007 may be disrupted, we expect the disruption to be temporary. As a matter of fact, we expect the robust economic performance of the region to attract additional allocation from international institutional investors over the medium term.
February 15th, 2009 Abu Dhabi, UAE
1.
Important Notice
1.1 1.2 1.3 Basis of preparation Definitions and assumptions Data filtering
1. Important Notice
1.1 Basis of preparation
This report has been prepared based on data provided by GVCA, sourced from the Zawya Private Equity Monitor. Historical data has been updated from that used in the 2007 GVCA report to include full year results for 2007 and to reflect increased disclosure of information in the market. KPMG has not initiated any primary research in relation to this draft report and has not sought to establish or confirm the reliability of the data provided by GVCA and Zawya. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. In analysing and determining the parameters of available data, it has been necessary to apply certain criteria, the most significant of which is as follows:
Private equity has been defined to include houses that have a General Partner / Limited Partner structure, investment companies and quasi-governmental entities that are run by, and operate in the same way as, a private equity house. Sovereign Wealth Funds (SWFs) have been defined to include official SWFs as well as entities that act as SWFs (particularly regarding their sources of funds) such as Mubadala, Istithmar and Dubai International Capital. Funds managed from MENA but whose focus is to invest solely outside the region are excluded from the fundraising and investment totals. MENA includes Algeria, Bahrain, Egypt, Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, UAE, and Yemen. Investment size represents the total investment (both the debt and equity portions). However fund size only considers equity invested, as we have no visibility on debt exposure by funds. The fund raising totals are the amounts closed/committed for fund raising funds, closed funds, investing funds, fully vested funds and liquidated funds. Vintage year is the year of the first official close. If no close information is provided, the announcement year is taken. In prior years only closes made to date and the date of the most recent close was available, whereas for 2008 we have been able to specifically identify vintage year for each fund. Given the relative infant state of the industry in MENA, exits have been defined to include partial exits, although simple dilutions have not been included.
95
1.2 Definitions and assumptions

For analytical purposes, we have considered the following types of funds, as defined by Zawyas Private Equity monitor: Announced: Official launch of funds which have yet to commence fund raising. Rumoured: Funds expected to announce their intention to commence fund raising. Fund raising: Funds which have been announced and which are in the process of raising capital. Investing: Funds which have closed (raised funds) and are actively seeking and/or making investments. Fully vested: Funds that have invested all capital raised. Some of the investments may have divested in this stage but not all. Liquidation: Funds which have divested all investments and have fulfilled all obligations to shareholders
1.3 Data filtering

The primary data sourced from Zawya has been filtered according to the definitions used in the Emerging Markets Private Equity Association (EMPEA) research methodology. In particular we have used the following definitions: Fund Size: In the case of funds yet to make a first close, or where no close information is available, fund size is equivalent to the target amount, and is noted as such. For funds achieving at least one official close, fund size is reported as the capital raised to date, while for funds that have made a final close, the fund size is the total capital raised. All amounts are reported in USD millions. Rumoured funds are excluded. Currency: Where funds data has been provided in a currency other than USD, exchange rates applied are from the last day of the month in which each close is reported, e.g. first close reported in on 15 April 2006 would be calculated using the exchange rate for 30 April 2006, taken from published rates available from www.oanda.com, www.xe.com, www.x-rates.com, or similar sources. Funds of funds or secondaries are excluded.
1. Important Notice
Region: Statistics are based on the market approach and funds are categorised based on the intended destination for investments (as defined in a funds announced mandate) as opposed to where the private equity firm is located. With regard to multi-region funds, we have included these to the extent that there is a focus on the MENA region. EMPEA methodology is to include only those multi-region funds whose primary intention is to invest in emerging markets. However, the source data does not provide visibility on primary geographic intention. Funds established with a specific mandate to invest in real estate are excluded from the fundraising, investment and exit totals. The remaining real estate investments relate to funds with mixed investment mandates. Conventional infrastructure funds, or funds investing directly in greenfield infrastructure projects (e.g. bridges, roads) are excluded from fundraising totals. However, funds that make private equity investments (determined based on target returns) in companies operating in the infrastructure sector are included. EMPEA does not track or report other alternative asset classes, including hedge funds, real estate funds and conventional infrastructure funds. In our analysis we have excluded data from investment-type companies and real estate firms, while also separating SWFs from the private equity funds. SWF transactions have been analysed separately.
2. GVCA introductory message
2. GVCA introductory message

As the financial crisis continues to unfold, both globally and in the region, the private equity business model is being challenged. The deleveraging process of the economy continues, with less and less debt available to finance private equity transactions. Adverse macroeconomic conditions are impacting previous investments, and are making new ones more challenging. Many IPOs have to be postponed and both trade and financial buyers opt to preserve cash for a rainy day. Many private equity houses are finding it more difficult to raise new funds. The illnesses that are today plaguing the economies in developed countries emerged in the region after a few months of delay. Commercial banks, largely spared from the first wave of CDO and CMO defaults, were faced with liquidity shortages and our own flavour of the real-estate bust. Investment banks and companies that banked on years of continuous growth and cheap debt were caught off guard by the reversal of economic fortunes. Many sectors in the real economy, like construction and real estate, are also facing challenging times as the economic tide recedes. However, the economic fundamentals for the region remain sound at least on a relative basis. Despite the decrease in oil prices, governments in the region are using their massive accumulated reserves to stimulate the economy and sustain economic growth. Despite instances of individual failures, the financial system remains largely open for business: banks are back lending after a short pause. Profitability of many enterprises increased despite the gloomy expectations, and consumers are still spending, albeit more prudently. The statistics and commentary in this report reflects what we have all experienced in 2008 - a taxing, yet enriching, experience for the youthful private equity industry and its practitioners in the MENA region. A note of thanks to our sponsors many of which are repeating sponsors from last year. Double thanks for those institutions that were affected by the crisis yet continued with the tradition of supporting this report. More importantly, this report is the fruit of many days of hard work from the teams of KPMG and Zawya. Thank you all.
Imad Ghandour Chairman Information & Statistics Committee Gulf Venture Capital Association Dr. Pablo Fetter Member Gulf Venture Capital Association
Ihsan Jawad Director Information & Statistics Committee Gulf Venture Capital Association
3. KPMG introductory message
3. KPMG introductory message

KPMG is pleased to continue its association with the GVCAs annual report on private equity in the Middle East and North Africa region for this, the third year. Whereas 2007 will be remembered for the regions stellar growth in fundraising and the announcement of landmark deals, 2008 was distinguishable by a notable shift in concentration within the industry. Only the more established fund managers were able to leverage their reputations and track record to secure successful closure of larger funds. As a result, even though fewer funds closed in 2008, the total funds raised during the year increased to more than $6.4 billion (compared to $5.8 billion in 2007). We expect this trend to continue, with a smaller number of larger General Partners leading the industry through its next phase of evolution. Private equity firms are taking the opportunity presented by the current economic conditions to become more efficient and focused operations. With attractive exit options scarce at present, the focus for many private equity firms is now the enhancement of performance of their existing portfolio with operational improvements, debt restructuring and working capital management at the core. Discretionary spending is being restricted (including expansionary capex) and business plan timelines being reassessed, as entities look to weather the storm. No-one doubts that opportunities will exist once we are over the worst, but few agree on when the worst will come, or whether it has already passed by. This change in focus is a welcome one. It should bring with it not just short term cash and operational benefits, but also more successful exits when the opportunities present themselves in the future. This report would not have been possible without the efforts of Zawya, the GVCA and members of the Report Steering Committee. We are grateful to them for sharing primary data and their industry insights, both of which provide the backbone of our findings.
Vikas Papriwal Partner, Private Equity and Sovereign Wealth Funds Tel: +971 4 403 0350; email: vikaspapriwal@kpmg.com KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 145 countries and have 123,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMGs presence in the Lower Gulf dates from 1973. With more than 700 professional staff and 26 partners, we operate from offices in Dubai, Abu Dhabi, Sharjah and Muscat. We also work closely with our colleagues in offices throughout the region and across the world.
4. Private equity in the MENA region

4.1 4.2 4.3 4.4 4.5 4.6 4.7 Summary Funds Investments Deployment of funds Regional focus Sector focus Exits and IRR
4.1 Summary
The current financial crisis has cast its shadow on this report. Most of the 2008 findings and analysis hereunder are consequences of this crisis, directly or indirectly. As the crisis marches on into 2009, it will be interesting to see what we will write on these pages next year. The decrease in oil prices will no doubt affect the stellar growth the region has previously experienced. However, economic and demographic trends indicate that the region will continue to grow, albeit at a slower rate. A greater share of petrodollars is being invested locally as a result of the commitments of local governments to social and economic development as well as the increasing liberalisation, privatisation and regional integration. The momentum of private equity activity has slowed down in 2008. The MENA region has been fertile ground in terms of fundraising activity, but it has proven less so for acquisitions. Investors and analysts alike have voiced concerns over the private equity industrys ability to mitigate and manage its exposure to the global credit crisis as well as its ability to sustain the high returns to which investors have become accustomed. Funds raised in 2008 increased to $6.4 billion from $5.8 billion in 2007. When compared to funds raised in 2005 ($2.9 billion), 2008 reflects a compound annual growth rate (CAGR) of 30 percent. 76 percent of the $19.6 billion under management has been raised in the past three years. Furthermore, there is an increasing trend towards larger raisings with the average fund size in 2008 being $258 million compared to $213 million in 2007 (2006: $177 million). Investments, however, saw a significant turnaround from the bullish activity in 2007 with both the number and total size of investments decreasing by 22 percent and 31 percent respectively. The result of an increase in fundraising and a decrease in investing activity is a significant accumulation of dry powder (capital called or committed that is yet to be deployed). This capital overhang renders the private equity industry strategically placed to capitalise on lower valuation dynamics in a time when other forms of funding are scarce and growth anticipated.
Cum ula tiv e fun ds ra i s ed a n d i n v es tm en ts m a de s i n ce 2000 Ex cludi n g l i q ui da ted fun ds

000,52
USD millions
Note: The graph above has the following limitations: - Funds raised represents committed capital and does not distinguish amounts called - It does not take into consideration any level of debt financing which, one can only assume, would widen the gap further - It does not account for management fees which can be in the range of 10-20% of committed capital over the life of the fund. - Investment analysis is based on information made available and is not conclusive Source: Zawya Private Equity Monitor
8002
7002
6002
eda m s tne m t se vnI
5002
4002
3002
de siar sdnu F
2002
1002
0002
000,02 000,5 000,5 1 000,0 1 -
11
The majority of MENA funds are focused on opportunities across the GCC and North African countries, although fund managers are increasingly launching funds with an expanded mandate that includes South or Southeast Asia (i.e. MENASA funds) and Turkey. Funds with a specific country limited focus are becoming less attractive. Investments over the last four years have focused primarily in Egypt, Saudi Arabia and the UAE, representing 33 percent, 15 percent and 14 percent respectively of total investments since 2005. In 2008 investments in each of these countries accounted for 19 percent, 17 percent and 14 percent of all investments for the year respectively. The $361 million acquisition of KES Power by Abraajs Infrastructure and Growth Capital Fund resulted in Pakistan accounting for 21 percent of total investments in 2008. The most dominant sectors for investments in 2008 were Healthcare, Transport, and Power and Utilities. The expected GDP growth and the increasing consumer base from an increasing population are expected to sustain investment opportunities, particularly from defensive sectors such as social infrastructure, healthcare, education and food, as well as energy-related industries, and transportation/logistics. Private equity will have a major role to play in financing domestic growth as other financing options dry up. "Much of oil liquidity is outside the region... that needs to be mobilized and pumped back into the region," Abraaj Capital's Executive Director Omar Lodhi, said. "It is important that small and medium size businesses are not starved of credit as they are today, which only exacerbates the problem1 ." Local businesses also stand to benefit from private equity investments, not only financially, but from the wealth of experience fund managers can bring in generating sustainable growth for industries as well as implementation of proper corporate governance frameworks, synergies from restructuring and access to management talent that has historically been relatively scarce in the region. Despite the positive long term outlook, private equity will continue to face major challenges in 2009. Exit options will be limited, as values have plummeted, forcing firms to rethink many investment strategies and focus on harbouring growth of existing portfolios. Deployment of funds will need to be more selective; existing investments may face operational challenges as the economy slows down; and raising new funds will be fundamentally difficult in an environment with dry liquidity.
1 Tahani
Karrar, UAE Must Mobilize Capital Abroad Back Into Region Abraaj Cap, Zawya Dow Jones, 4 February 2009
12
Thought Leadership
Dr Nasser Saidi
Founder and Director of Hawkamah, the Institute for Corporate Governance
Governance Matters in MENA Private Equity

Sustainable value creation and corporate governance go hand-in-hand. Corporate governance refers to the monitoring and control over how the firms resources are allocated, and how relations within the firm are structured and managed. It promotes efficiency, transparency and accountability within firms, thereby ensuring sustainable economic development and financial stability. Transparency enables early detection of poor performance and accountability requires that shortcomings be addressed by management; while the adoption of best practices enhances the managements focus on the companys objectives. MENA private equity should play a critical role in diffusing good corporate governance practices across portfolio companies in terms of board structures, administrative procedures, disclosure requirements and minority interest protection. These facilitate the conversion from family firms into institutions and from non-listed to listed companies, from which all parties and stakeholders benefit: surveys show that investors are willing to pay a premium for companies practicing good corporate governance. In addition to higher value generation for the PE industry, regional economic development largely depends on the engagement of the private sector to drive the modernisation process. The private sector in MENA is dominated by SMEs and family-owned enterprises, whose governance needs can be met by the PE houses. The promotion of good corporate governance at the level of PE firms themselves is an integral part of this process. This is not only because practices adopted at PE firms are often reflected in their portfolio companies, but to attract a wider range of investors. The credit crunch has brought into focus the purposes of financial reporting and investment decisions are increasingly based on understanding the business model, key risks and relationships, and the culture and behaviour of an organisation. Furthermore, good corporate governance fosters confidence and credibility, which help alleviate potential stakeholder concerns. It is for these reasons that Hawkamah has launched a Task Force to develop guidelines for PE firms and portfolio companies. The Task Force will work on a consensual basis and seek input from a wide range of interested parties. Parties interested in becoming involved in the project are encouraged to contact Hawkamah at info@hawkamah.org.
13
Thought Leadership
Paul Harter
Partner, Gibson, Dunn & Crutcher LLP
Legal Tools for Private Equity in the Current Economic Environment

Over the past several years, the legal profession has advanced in the Middle East in response to a growing and increasingly sophisticated private equity client base. International best practices and standards have been adapted to a region characterised by family ownership, minority investments, greenfields, carve outs and foreign ownership restrictions. 2009 presents a new set of legal challenges for private equity. While deal pipelines and investment appetite may be weak, private equity should emerge gradually, particularly in sectors that are relatively recession resistant (such as healthcare and education), as well as in depressed sectors where bargains may be available (such as hospitality and property). Yet, for so long as price volatility and dry debt markets persist, private equity should consider certain legal tools to address real challenges.
Increased use of vendor financing and earn outs. Financial sponsors need to bridge value gaps and deal with very tight debt markets. Larger equity cheques and the use of mezzanine finance may be part of the answer, though more costly and necessarily impacting leveraged returns. Vendor financing and earn outs can be employed to bridge gaps and, to a certain extent, as a form of financing. It is critical to write legally unambiguous definitions of ill-defined accounting concepts (such as IRR and even EBITDA) and to define mechanics for measuring future financial performance that are at the same time accurate, inexpensive, quick to achieve and not prone to disputes. Improved corporate governance. Partnering with family owners requires careful attention to corporate governance, meaningful minority protections, enhanced risk management systems and timely and reliable information flows. Today more than ever, private equity needs to manage working capital and cash flows and worry about the operating results of portfolio companies. Financial sponsors will therefore focus greater attention on contractual rights to facilitate stewardship and oversight and ensure prompt and accurate financial reporting. Addressing the downside. Insolvency laws in the Middle East are poorly understood and, until now, rarely tested. 2009 may very well prove to be a year in which a large amount of new learning will emerge. Sponsors will increasingly seek guidance on "what if" scenarios, some of which can impact the structuring and documentation of deals. Careful attention will increasingly be paid to contract rights relating to exits, deadlocks, dispute resolution and rescue funding. Increasing the legal value add. While some sponsors have viewed legal services as an afterthought, to be purchased on a commodity basis, increasingly many firms are realising the added value of more thorough documentation and advice from experienced private equity lawyers. Although worsening economic conditions will inevitably put more pressure on cutting expenses, if there was ever a time to seek value added advisory services, that time would be now.
14
4.2 Funds
4.2.1 Funds raised to date
Fun ds rais ed by y ear
03 000,7
$ million
Source: Zawya Private Equity Monitor
Despite the turbulence of financial markets in 2008, total funds raised increased to $6.4 billion, compared to $5.8 billion in 2007 (an increase of 11 percent). This increase can be primarily attributed to large funds raised such as the $2.6 billion Abraaj Buyout Fund IV and several funds of $500 million or more. Fund activity in the MENA region has ballooned in recent years, as regional and international LPs aim to capitalise on the significant growth opportunities from the emerging markets in general and the MENA region in particular. Since 2005, fund raising activity has more than doubled, reflecting a CAGR of 30 percent. Of the $6.4 billion closed in 2008, $5.4 billion were first closing (84 percent of the total), up from $3.9 billion (68 percent of the total) for first closing in 2007.
52 02 5 1 0 1 5 8 1 8002 raey h cae ni se s ol c h tiw sdnu f f o . o N 7002 9 1

No. of funds
82 6002 7 1 5002 de siar erew sdnu f eh t raeY e s ol c drih T 2 4002 5 3002 e s ol c dn o ceS 3 2002 3 e s ol c t s ri F 1002 5 0002 000,6 000,5 000,4 000,3 000,2 000, 1 -
15
Cum ula tiv e fun ds un der m a n a gem en t

072 000,52
$ million
Note: The above graph excludes liquidated funds Source: Zawya Private Equity Monitor
As a result of the stellar growth in fundraising activity over the last four years, cumulative funds under management increased from $4.8 billion in 2005 to $19.6 billion in 2008. Additionally, the average fund size has increased significantly over the period to $258 million in 2008 due to larger sized funds becoming more common as the region matures. This reflects a tendency from investors to back experienced teams with proven track records with larger sums, as is the case with Abraaj, Investcorp and others. Hence, whereas the established private equity houses were able to raise larger funds, new entrants aiming to raise their first fund even modest sizes faced an increasing challenge in attracting investors.
16
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Average fund size ($million)
M a jor fun ds ra i s ed i n 2008

Fund N ame Abraaj B uyout Fund IV The Carlyle Group M E NA Fund NB D S ana Capital Global M E NA Financial As s ets Gulf O pportunity Fund I Growth Gate M illennium P rivate E quity Global E nergy Fund M illennium P rivate E quity Telecom s , M edia & Technology Fund M aghreb P rivate E quity Fund II O thers T otal T otal fund s i z e after 2 008 cl os e
Note: Total fund size after 2008 close represents the total fund size for all funds making a close in 2008 Source: Zawya Private Equity Monitor
Fund M anager Abraaj Capital The Carlyle Group S ana Capital Global Inves tm ent Hous e Inves tcorp B ank Keys tone E quity P artners M illennium P rivate E quity M illennium Finance Corporation Tuninves t Finance Group Various
I nves tment Focus B uyout B uyout B uyout B uyout B alanced Fund B uyout B alanced Fund
G eograp hi c Focus M E NAS A M E NA M E NA/ Turkey M E NAS A/ Turkey M E NA GCC M E NA
Cl os e Firs t Firs t Firs t Firs t S econd S econd Firs t
$ mi l l i on 2,6 00 5 00 5 00 5 00 45 0 29 0 200
B uyout B uyout Various
M E NA North Africa Various
Firs t S econd Various
15 0 127 1,117 6,43 4 7,714
The most prominent fundraising in 2008 was the $2.6 billion closed for the Abraaj Buyout Fund IV, focused on the MENASA region. Also focused on the high growth MENASA region (and Turkey) is Global Investments Houses Global MENA Financial Assets fund which raised $500 million in 2008. This fund is reported to have an average investment size of about $30 million to $50 million across 10 to 15 companies. Furthermore, this fund is the first permanent capital vehicle from the MENA region to be listed on the London Stock Exchange which invests in private equity assets. According to reports, the IPO was subscribed more than 100 percent, with interest from both the European and Middle Eastern investors. The NBD Sana Capital Fund also raised $500 million in 2008 and has a secondary focus (after MENA) on Turkey.
17
V in ta ge fun ds v s a ctua l fun ds ra i s ed

4 3 4, 6
$ million
Analysis by vintage year represents the total funds raised to date allocated to the year in which each fund made its first close and therefore allocates second and third closes to the same year, irrespective of when those closes occurred. As an example, total funds raised to date from 2006 vintage funds is $3.9 billion, although only $2.4 billion of this was actually closed in 2006, with $1.4 billion and $0.1 billion closing in 2007 and 2008 respectively. Actual funds raised in 2006 totalled $2.6 billion. Similarly, funds raised to date for 2007 vintage funds is $5 billion. However, of this amount, $4.1 billion was actually closed in 2007, with the remaining $0.9 billion raised from second close in 2008. Total close from all funds in 2007 was $5.8 billion (after taking into consideration the second and third close of prior year vintage funds). The above analysis shows that the amount of funds actually closing decreased from 2005 to 2006, despite an increase in vintage funds from those years. The difference between funds raised to date for 2008 vintage funds ($5.5 billion) and actual funds raised in 2008 ($6.4 billion) relates to second closes made in 2008 for prior year vintage funds. Of the 18 funds raising capital in 2008, 14 were 2008 vintage funds, three were 2007 and one was 2006. However, first closes represented 84 percent of the total funds raised in 2008, a 16 percent increase from the prior year, mostly attributable to the major Abraaj raising.
18
8002
75 4,5
2 87,5
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5 4 6, 2
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4 0 9, 3
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311
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V in ta ge fun ds ra is ed by s ize
000,6
$ million

99-0
Note: Figures in brackets represent the number of funds per vintage year Source: Zawya Private Equity Monitor
There has been a growing trend for larger fund raisings, particularly since 2006. Apart from the Abraaj Buyout Fund IV, only two other funds have crossed the $1 billion threshold to date. The Infrastructure and Growth Capital Fund (a 2007 vintage fund managed by Abraaj Capital and co-sponsored by Deutsche Bank and Ithmar Bank) and the Global Opportunity Fund 1 (a 2007 vintage fund managed by Investcorp Bank.) The total funds raised to date from 2005 to 2008 vintage funds is approximately $17.7 billion, of which 64 percent ($11.4 billion) was from 14 funds each raising $500 million or more (including the three funds detailed above). By number, these 14 funds represented only 21 percent of the total number of funds. The mid-market funds ($100 million to $499 million) represented a dimishing market share for 2008 vintage funds (36 percent by number and 14 percent by size) and are not expected to remain major players in the region.
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19
V i n ta ge fun ds by i n v es tm en t focus
000,6
$ million
Note: Figures in brackets represent the number of funds per vintage year Source: Zawya Private Equity Monitor
2008 vintage funds were dominated by buyout focused funds (92 percent by size and 64 percent by number) due primarily to five major buyout funds that have together raised $4.6 billion. The trend towards raising more and larger buyout funds is supported by the need for more flexibility in structuring deals and the success of large buyout transactions such as the Egyptian Fertilizer Company (EFC) in 2007 for $1.4 billion. Buyout funds have invested in majority and minority equity stakes and in operating companies and infrastructure-like assets, hence giving them greater flexibility in their investment strategy. Infrastructure funds, which gained popularity in 2006 and 2007 due to the anticipated demand for infrastructure financing in MENA and their stable returns and predictable cash flows, have fallen out of favour with investors in 2008. The business case for such funds has proven to be slower to materialize (despite the upcoming demand for infrastructure financing) and such funds have had limited success deploying their funds. Limited project finance and higher cost of capital that ensued as a result of the current crisis, will make it tougher to raise new infrastructure funds in MENA. Venture capital funds remain largely unattractive in the MENA region, with only three venture capital funds raised in 2008. The venture capital model has remained unproven in the region, despite many attempts by individuals and governments to adapt the western model to the Middle East.
20
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000,5 000,4 000,3 000,2 000, 1 -
4.2.2 The fundraising cycle

Fund ra is ing c yc le
Ye ar 2005 2006 2007 2008 2008, adjus ted (1) A nnounce d Rais e d in IT S ($ m illion) s am e ye ar 4,144 65.4% 11,030 19.3% 10,828 29.3% 10,532 34.9% 6,532 16.4% Rais e d in ye ar 2 12.6% 21.1% 11.6% n/a n/a Rais e d in ye ar 3 6.8% 11.8% n/a n/a n/a Ye t to be r ais e d 15.2% 47.8% 59.1% 65.1% 83.6%
Note: (1) Adjusted excludes the Abraaj Buyout Fund IV with an ITS of $4 billion (announced in 2008) and $2.6 billion raised in 2008 Source: Zawya Private Equity Monitor
There is an increasing delay in fund raising. When compared to the intended target size (ITS), only 16 percent of the total amount announced in 2008 (adjusted) was raised in a first close in the same year, compared to 65 percent in 2005. Roughly half of the funds announced in 2006 have so far been raised and approximately $11.7 billion of announced funds in 2006-8 have yet to make a close. This delay calls into question both the ability of funds to actually raise the amounts announced as well as their ability to call on all amounts raised/committed to date, especially in the context of the current market.
Fun ds ra i s ed by a n n oun ced y ea r

000,2 1
$ million
de siar eb o t sdnu F
5 0 8, 4 6 0 6,5 8 3 3,1
8002 ni de cnu onn A
17 8, 3
8002
7 0 3,1
65 2,1
3 2 3, 2
7002
771, 3
282
6002
3 21, 2
2 25
000,0 1 000,8 000,6 000,4 000,2 -
21
4.2.3 Funds yet to be raised

Fun ds y et to be ra i s ed by s ta tus
4 1 000,6
$ million
Note: Total announced in 2007 includes one fund (with an ITS of $0.5 billion) which we understand has made a close, however no close information has been made available Source: Zawya Private Equity Monitor
There is an increasing number of funds that are taking a prolonged time to raise their capital. Of the total funds announced in the last three years $11.7 billion is still to reach a first close ($1.3 billion of which relates to 2006 and $5.6 billion to 2007). The delay in making a first close is primarily driven by the following funds:
22
2 1 0 1 8 6
No. of funds
2 1
55 8,1
8002
05 9, 2
sdnu f f o o N
raey de cnu onn A
gni sia R dnu F
5 41,5
7002
164
de cnu onn A
6002
443
499
000,5 000,4 000,3 000,2 000, 1 -
The region is attempting to raise larger funds than it had previously, which may be a contributing factor to the delay between announcement and first close. This trend is significantly impacted by a handful of major announcements yet to come to fruition. For example, of the $4.8 billion announced in 2008, $3.9 billion relates to six specific funds. Similarly, two funds announced in 2007 account for $4 billion (or 71 percent) of the amount yet to be raised from 2007 vintage funds ($3 billion alone being from DIB/DPW Family of Funds). As the industry matures and consolidates, some of the funds announced, mainly by new fund managers, will never reach successful closure. Industry experts doubt that some of the mega fund announcements in 2007 and 2008 will ever come to fruition. Where funds are yet to make a first close, or where no close information is available, fund size is stated as the target amount. For funds achieving at least one official close, fund size is reported as the capital raised to date, while for funds that have made a final close, the fund size is the total capital raised. As such, funds yet to be raised (above) does not account for future closes of funds that have made at least one close. The following is an example of funds for which closes to date are significantly less than their ITS:
23
4.2.4 Total active funds

B rea k dow n of priv a te eq uity fun d by s ta tus (2000 - 2008 )
Fully vested (9 funds) $ 1billio n (3%) A nno unced (1 funds) 3 $ 4.4 billio n (1 4%)
Final clo se, investing (61 funds)
$ 1 billio n 5.2 (48%)
$ 7.3 billio n (23%)
Fund raising yet to make clo ses (1 funds) 6
$ 3.4 billio n (1 %) 1
Fund raising with at least 1 clo se, investing (6 funds)
Note: Fundraising yet to make a close includes $0.5 billion related to a fund which has made a close that was not quantifiable Source: Zawya Private Equity Monitor
The total size of all active funds in the market in 2008 (both raised and yet to be raised) was $31.3 billion, of which $19.6 billion has been raised. Of the 107 active funds in the market, 18 have announced a total of $7.4 billion that they are in the process of raising and 13 are yet to commence raising an ITS of $4.4 billion.
24
4.3 Investments
4.3.1 Information limitations
Market experts estimate between 10 and 30 per cent of private equity investments remain unannounced. Furthermore, some PE houses have not revealed the size of their investments, casting further limitations on the information available. Approximately 14 per cent of the announced transactions over the last decade have not publicly disclosed their size. In many cases, transaction size has been estimated by experts for analysis purposes only based on available market intelligence. Further, in the absence of comprehensive information on the financing structures used by the private equity houses for funding transactions, we are unable to analyse and comment on the debt/equity financing strategies used for structuring investments.
4.3.2 Investments made to date

PE In v es tm en ts i n the la s t 10 y ea rs (1999 - 2008 )
07 06 05 04 03 02 0 1 8002
05 46
$ million
After experiencing exponential growth in 2007, private equity activity in the MENA region has declined in 2008, both in total size (31 percent) and in number (22 percent). The decline seems surprising given the abundance of dry powder and the economic prospects of the MENA at least up to October 2008. One explanation is that company owners may be reluctant to sell at valuation levels that reflect the new economic realities. Christophe de Mahieu, of Investcorp, believes the industry is still waiting for company owners to shift their expectations in line with what has happened on the stock markets2 . However, the current decline does put in question the quality and quantity of deal flow in MENA region.
Waiting For Sinking Companies To Start Calling For Help, The National, 16 February 2009
7002
6002
84
sn oi t ca snar t f o on
5002
44
4002
21
3002
01
ezi s lae D
2002
1002
0002
999 1
000,4 005,3 000,3 005,2 000,2 005, 1 000, 1 005 -
No. of transactions
25
The decrease in volumes from 2007 to 2008 is partially distorted by the Infrastructure and Growth Capital Funds acquisition of Egyptian Fertilizers Company (EFC) for $1.4 billion in 2007. After excluding this investment, the investments volume actually increased by 15 percent. Nevertheless, the tightening credit markets may have contributed to the lack of any similar transaction in 2008. Despite this recent decrease, total private equity investments in the MENA region (by value) have increased by a CAGR of 48 per cent since 2005. Of the total investments made in the last decade, approximately 86 percent were made in the last three years (2006-2008), with approximately 39 percent and 27 percent made in 2007 and 2008, respectively. Some of the major transactions in 2008 are as follows:
S ize of PE in v es tm en t com pa ris on

53 03 52 02 5 1 0 1 5 8002 n oillim 005 $ re vO 0 7002 1 6002 1 n oilli m 994 $ o t n oillim 00 $ 1 8002 7002 6 5 sn oi t ca snar t f o rebmu N 6002 2 8002 7002 n oilli m 99 $ o t n oillim 05 $ 7 2 1 6002 5 8002 n oilli m 94 $ o t n oillim 02 $ 8 1 7002 6002 2 1 ezi s lae D 5 1 8002 6 1 33 006, 1
$ million
26
2008 saw no transactions close for greater than $1 billion, presumably a direct result of limited access to, and increased cost of, debt in the current climate. However, transactions with a value between $100 million and $499 million increased in 2008. The number of transactions between $1 million and $19 million decreased from 2007 to 2008, which may reflect the difficulties experienced by smaller funds in raising money and executing deals. Interestingly though, transactions between $20 million and $49 million increased in size and number in 2008.
n oilli m 9 $ o t n oillim1 $ 1
7002 6002
12 8002 n oillim1 $ nah t s seL 3 7002 1 6002 4
004, 1 002, 1 000, 1 008 006 004 002 -
PE In v es tm en ts in the la s t 10 y ea rs (1999 - 2008 )
$ million
Despite representing only 30 percent of total investments by value over the last decade, deals up to the value of $49 million represent approximately 76 percent in terms of number of transactions, with the most common deal size traditionally being between $1 million and $19 million. 21 percent of the total value of investments over the decade can be attributed to Abraajs 2006 25 percent investment in EFG Hermes for $501 million and its 2007 acquisition of EFC for $1.4 billion (the regions first billion dollar investment).
04 1 02 1 00 1 08 06 04 02 n oillib 1 $ nah t er o M 1 n oillib 1 $ o t 005 $ 1 n oilli m 994 $ o t 00 $ 1 5 1 sn oi t ca snar t f o on n oilli m 99 $ o t 05 $ 13 n oilli m n oilli m 94 $ o t 02 $ n oillim 9 $ o t1 $ 1 $ nah t s seL 1 ezi s lae D 65 62 1 8
No. of transactions
005,2 000,2 005 005, 1 000, 1 -
27
A v era ge Tra n s a ction s ize

55
$ million
Average transaction size from 1999 to 2008 was approximately $38 million and in 2008, the average investment size was $49 million. After considering the distortionary impact of the two major investments noted above, the last decades average decreases to approximately $30 million, indicating that private equity in the MENA region focuses primarily on middle market size targets.
P erc enta ge s ta k e a c quired in P E inves tments

2005 2006 2007 2008 De al s iz e Num be r De al s iz e Num be r De al s iz e Num be r De al s iz e Num be r Les s than 10% 39% 47% 20% 40% 6% 25% 8% 15% 10% to 24% 37% 30% 15% 30% 13% 25% 7% 30% 25% to 49 % 15% 20% 62% 23% 13% 25% 39% 30% Greater than 50% 9% 3% 4% 7% 67% 25% 46% 26% T otal w ith tr ans action s tak e 100% 100% 100% 100% 100% 100% 100% 100%
Traditionally minority investments have been most common in the region as the industry has adopted a growth capital model to many investments. From 2007, it appears that the buyout model has gained some traction in the region, with both the number and size of transactions with a majority/control stake having increased.
28
8002
94 94
de t sujdanu ,ezi s n oi t ca snar t g v A 7002
43
6002
72
63
de t sujda ,ezi s n oi t ca snar t g v A 5002
71
71
4002
01
01
06 05 04 03 02 0 1 -
Thought Leadership
Fred Sicre
Executive Director, Abraaj Capital
Whats been going on with regional PE and what is the outlook?

The last couple of years saw Private Equity in the MENASA region really come to age. The industry shed some of its mystery as an increasing number of funds were raised, transactions consumed, international conferences on the PE Industry were held and media got to learn more about the industry itself. The GVCA report you are holding today is in its third edition and has also made its significant contribution. The last few years have been stellar for private equity players globally, and in our region as well to the extent that some were calling the Middle East the fourth center of private equity in the world. This trend largely continued throughout the first half of 2008 although little by little liquidity issues were on the increase making the global industry question the feasibility of large buy outs as debt markets became scarcer and more expensive. We know today where all that took us. In the first quarter of 2009 the world has undoubtedly changed. Where we are going still remains unclear at the time of going to print; however a few trends are emerging for private equity investors in the region. Limited Partners are, as can be expected, reassessing their priorities. Uncertainty and confidence bashing events like the Madoff ponzi scheme have made fundraising more difficult. Established GPs with a solid brand equity and track record will be preferred to less experienced private equity teams moving forward. Also, it is becoming apparent that the PE model as some have practiced here is now being held up globally as the model to be followed. Rather than looking at large levels of debt to reach your desired IRRs, focusing on operational enhancements, market expansions and platforming strategies are the real value creating approaches to PE investing. Exits will also be very difficult in the foreseeable future as sellers wont be encouraged by valuation levels and buyers face the liquidity squeeze. Although the global economic environment will remain very difficult in the foreseeable future, our region has a slightly different story to tell. The outlook for our Middle East, North Africa and South Asia region remains bright, especially looking at the long term. Our economies still have a long way to go before they reach the maturity of the West and industries reach the same penetration levels as the developed world. The combination of population growth and structure, of government policy-changes that increasingly encourage private investment and of abundant natural resources augurs well for recovery. This being said the global crisis is making itself felt in our region but, out of every challenge arises opportunity. For the private equity industry, lower valuations should provide opportunities for those players with dry powder to make significant acquisitions at interesting multiples. We may see an increase in the rate of public to private transactions as resilient companies seek financing to continue their growth plans. In large markets such as India or the Kingdom of Saudi Arabia entrepreneurs are going to need to find alternative routes for raising capital due to the loss of public market liquidity. 2009 will be a defining year for our industry globally and for that reason in our region as well. Its no longer business as usual for any corporate entity. Business models, strategic plans, structures and products are having to be revised on the backdrop of uncertainty and volatility. It makes for a delicate balance, an act of virtuosity that will determine who is still around 2 years from now.
29
4.4 Deployment of funds

Cum ul a ti v e fun ds ra i s ed a n d i n v es tm en ts m a de - Ex cludi n g liq uidated fun ds
000,52
$ million
Note: The graph above has the following limitations: - Funds raised represents committed capital and does not distinguish amounts called - It does not take into consideration any level of debt financing which, one can only assume, would widen the gap further - It does not account for management fees which can be in the range of 10-20% of committed capital over the life of the fund. - Investment analysis is based on information made available and is not conclusive Source: Zawya Private Equity Monitor
When considering deployment analysis, it is important to note that the data available does not take into account any level of debt financing, nor does it consider management fees which can be in the range of 10-20 percent of committed capital over the life of the fund. It is expected at such an early stage in the development of this market to have some capital overhang as a result of the fund raising cycle running ahead of the deployment cycle. The decrease in investments, despite an increase in fund raising activity, has led to an expansion in the level of capital yet to be deployed in the region, estimated to be approximately $11 billion.
30 33
7 0 8, 8
8002
9 2 6, 91
edam s tnem t se vnI
1 6 3, 6
7002
5 91, 31
5 3 8, 2
de siar sdnu F
6002
31 4,7
4 8 0,1
5002
8 67, 4
000,02 000,5 000,5 1 000,0 1 -
F un ds ra i s ed a n d i n v es tm en ts m a de to da te b y v i n ta ge y ea r
000,6
$ million
Note: The above graph plots funds raised to date by vintage year only for funds for which we have both investment and fundraising information Source: Zawya Private Equity Monitor
A significant gap becomes apparent for 2007 and 2008 vintage funds which is presumably a function of both the impact of the current economic climate as well as the fact that these funds have had less time to identify and execute investment transactions.
2007
2,000
535
8002
754,5 063, 1 7002 s tnem t se vnI 759,4 394,3 de siar sdnu F 6002 409,3 963,2 5002 353,3
000,5 000,4 000,3 000,2 000, 1 -
31
Thought Leadership
Ahmed Heikal
Chairman and Founder, Citadel Capital
A Return to Our Entrepreneurial Roots

We are heading into one of the most challenging economic cycles the Middle East and North Africa has ever seen. But while many would sound the death knell for private equity, those among us with truly creative, entrepreneurial spirits will use the year ahead to put together deals that portend serious returns when growth accelerates in the next decade. In the past four years, the MENA private equity space has been marked by mega-deals, a great many of them leveraged to the hilt. With debt almost impossible to obtain and investors increasingly unwilling to commit new funds to any asset class, let alone private equity, these have ceased to be features of our landscape. This does not, as some in the global financial press have speculated, herald the beginning of the end for private equity firms not in our region, at least. Instead, it signals that we must return to our roots as patient builders of investments and as we do so, we will find that consolidation plays, distressed deals and greenfields are the dominant items on our investment menus. With that in mind, I am confident that the theme of 2009 and heading into 2010 will be mid-to-large-size deals executed in multiple phases. Call it an incremental approach to private equity, if you will: one in which you can lock in large, attractive investment opportunities with very little in the way of up-front capital commitments. In this way, we will be able to conserve our lifeblood in a very difficult operating environment. Obviously, not every deal is innately flexible enough to lend itself to an incremental execution. But by their very definition, most consolidation plays will allow this. As we review the distressed assets that are now appearing on the horizon, we should look for bite-sized opportunities that can be cobbled together to create a new, larger, healthier asset. Similarly, phased greenfield plays may not work in every case, but savvy investors will appreciate the flexibility in pursuing measured growth opportunities that may otherwise have been beyond their reach in the current climate. This shift in private equity will undoubtedly favor the well-prepared control investor who is willing to roll up his sleeves and help build the platform companies in which his funds invest. In a sense, then, we are entering a climate in which the most entrepreneurial among us will thrive.
32
4.5 Regional focus

V in ta ge fun ds by region 3
000,5
$ million
Funds raised with an intended focus on the MENA region generally represent the majority of the total funds raised since 2005. However, a significant portion of the funds raised in 2008 (primarily the Abraaj Infrastructure and Growth Capital Fund), relates to MENASA4), as funds begin to look into other emerging markets. Industry experts believe that the significant infrastructure developments in the region, coupled with an increased acceptance of private equity from both governments and family business, will be the catalyst for growth in the MENASA region5. There has also been an increasing tendency to combine Turkey with the MENA region. Country specific funds have decreased, possibly due to limitations of investment scope and risks associated with exposures to individual countries. This shift also reflects the general industry trend. Egypt seems to be the only country which still supports single country funds. The proportion of funds focused on MENA generally has declined as more funds have been raised with a combined focus on MENA and other countries/regions. However, $2.6 billion was announced in 2008 with a MENA focus, for which the funds have not yet made closes.
3 Per the above graph, 'MENA' refers to funds listed as MENA or any subset of MENA, including GCC, Levant or North
Africa. 'MENA and Other' includes funds which have a MENA/GCC focus as well as a secondary, more specific focus outside the MENA region (e.g. MENA/Turkey or MENA/US). 'Other specific countries' includes funds with individual country focus. Other specific countries include funds with individual country focus. 4 Middle East North Africa South Asia 5 Babu Das Augustine, Private equity deals set for big boom in and around the Mideast, Gulf News, 4 March 2008
seir tnu o c ci fi cep s reh tO
8002
7002
AS A NE M
raey ega tniV
reh t o dna A NE M
6002
A NE M
5002
tpygE
005,4 000,4 005,3 000,3 005,2 000,2 005, 1 000, 1 005 -
33
Focus of investments
Regi onal s p l i t of P E I nves tments - 2 008
In 2008, Egypt and Saudi Arabia led the MENA region in terms of private equity investments with $467 million and $416 million being directed towards each country respectively. The UAE and Kuwait have each experienced a modest level of investment in 2008 with a combined total of approximately $546 million (21 percent) being deployed into these countries during the year. 22 percent of investment in 2008 (by value) were directed towards Pakistan relating to investments in KES Power ($361 million) and Bosicor Group ($156 million) by Abraaj's Infrastructure and Growth Capital Fund.
R egion al con cen tration of PE in v es tm en ts 2005 - 2008
$ million
34
sreh tO
%91 tpygE
8002
%22 na t sika P
nadr o J
%71 aibar A iduaS
na t sika P
7002
tiawuK
%02 sreh tO
yekru T
%41 E AU
%8 tiawuK
6002 E AU aibar A iduaS 5002 tpygE 005 000,1 000,4 005,3 000,3 005,2 000,2 005,1 -
Since 2005, there has been a distinct concentration of investments in Egypt with approximately $2.8 billion (33 percent of the total investments) injected into the region. This was mostly due to the two largest transactions of the past decade being based in Egypt - Abraajs investment of $1.4 billion in EFC in 2007 and $501 million in EFG Hermes in 2006. Although the investment value in Egypt is dominated by these two specific transactions, there has also been a significant number of smaller investments in the country. Since 2005 there has been a total of 28 transactions in Egypt (13 percent of the total number since 2005).
R egi on a l s p l i t of PE In v es tm en ts i n the l a s t 10 y ea rs (1999 - 2008 )

Others 21 %
R egi on a l s p l i t of PE In v es tm en ts i n the l a s t 10 y ea rs (1999 - 2008 ) A DJ U S TED

Egypt 1 3%
Egypt 32%
Others 31 %
Saudi A rabia 20%
Kuwait 6% Turkey 6% UA E 1 5% Saudi A rabia 1 6%
Kuwait 8% Turkey 8% UA E 20%
Of the $9.0 billion invested over the last decade, 32 percent (or $2.8 billion) related to Egypt. After excluding the two significant investments detailed above, the proportion attributable to Egypt is 13 percent, with 20 percent being attributable to both Saudi Arabia and the UAE. Prior to 2003, there were no known PE investments in Saudi Arabia and up to 2005 only $230 million had been invested there. Since 2006, Saudi Arabia has received $1.2 billion in private equity investments. This was mainly due to the economic liberalisation policies adopted by the Saudi government and reflects the Saudi Arabian General Investment Authority (SAGIA) 2010 plan. Assuming that the Saudi liberal economic policy is maintained and given the size of the Saudi economy relative to the region, it is expected that Saudi Arabia will assume a bigger share of total investments in the future.
35
4.6
Sector focus
S ector s plit of PE In v es tm en ts - 2008
In 2008, the most dominant sectors for investment were Healthcare, Transport, Power & Utilities and Construction, together accounting for $1.4 billion (or 56 percent) of the total investments for the year.
S ector con cen tration of PE in v es tm en ts 2005 - 2008
$ million
The significant increase in the Industrial Manufacturing sector in 2007 is related to the $1.4 billion acquisition of EFC.
36
%51 tr op snarT
8002
%51 sei tili tU dna rew o P
sreh tO era C h tlae H
%61 era ch tlae H
7002
sei tili tU dna rew o P tr op snarT
%11 n oi t cur t sn o C
%81 sreh tO %9 sm o celeT
saG dna liO n oi t cur t sn o C se civreS lai cnani F gniru t ca funa M lair t sudnI 6002 5002
%8 se civreS lai cnani F
%8 saG dna liO
000,4 005,3 000,3 005,2 000,2 005,1 000,1 005 -
Financial Services
Financial services was the most preferred sector in 2006 (approximately 36 percent of total investments). However, since then it has lost attractiveness as only 10 percent and 8 percent of the total investments were made into the sector in 2007 and 2008 respectively.
Transport
Despite the general decrease in total investment in 2008, the size of investments in the Transport sector increased from $162 million in 2007 to $363 million in 2008. This was primarily driven by the majority investment made in TVK Shipyard in Turkey for $100 million by The Carlyle Group MENA Fund and Global Buyout Funds $90 million investment in Jassim Transport and Stevedoring Company in Kuwait.
Construction
Of the total investments made in the construction sector since 2004, over 60 percent (by value) were in the UAE. As a result of the current conditions prevalent in the real estate market, this is expected to decrease in the immediate future.
Healthcare
Investments in the healthcare sector increased from approximately 8 percent of the total investments in 2007 to 16 percent in 2008. Although this sector has not performed well historically in terms of attracting private equity investments, it is expected to gain popularity in the coming years due primarily to population growth, increased longevity, unhealthy diets, and less active lifestyles as well as an increasing liberalization of healthcare markets regionally. Given this projection and considering the relatively recession resistant nature of this sector, PE investments within the healthcare realm are destined to pick up. Notable transactions in healthcare are Abraajs investments in Tadawi, Al Borg and Acibadem Saglik Hizmetleri and Ticaret for $214 million, $150.5 million and $162.5 million respectively.
37
S ector s plit of PE In v es tm en ts in the la s t 10 y ea rs (1999 2008 )

gniru t ca funa M lair t sudnI %8 1 se ci vreS lai cnani F %4 1
tr op snar T era ch tlae H
Total investments by size in the past decade have been led by the Industrial Manufacturing sector with 13 transactions and a total investment size of approximately $1.6 billion. However, $1.4 billion relates to Abraajs acquisition of EFC. Furthermore, total investments in the Financial Services sector over the last decade are estimated to be $1.2 billion, of which $501 million relates to Abraajs investment in EFG Hermes. After excluding these two investments, transport appears to be the most preferred sector making up approximately 15 percent of the total investments, followed by financial services, healthcare and construction, with approximately 10 percent each.
S ector s plit of PE In v es tm en ts i n the las t 10 y ea rs (1999 2008 ) - A DJ U S TED

gniru t ca funa M lair t sudnI
38
tr op snar T
%5 1
se ci vreS lai cnani F
%1 1
%0 1
%0 1
n oi t cur t sn o C
%0 1
era ch tlae H
%8
%3
n oi t cur t sn o C
saG dna liO
%9
%8
sreh tO % 2 1 saG dna liO %7 e ta t sE lae R sei tili tU dna rew o P

sei tili tU dna rew o P sreh tO %72
%6
e ta t sE lae R
%7
%9 %7
Thought Leadership
Hoda Abou-Jamra
CEO, Boston BioCapital & Founding Partner, TVM MENA
Private Equity Investment in Healthcare

According to our data, total private equity investment in MENA healthcare was $449m in 2007 compared with almost nothing the previous year. Why the sudden interest in healthcare in the Middle East? Firstly, there are three clear factors driving growth in the MENA healthcare market: Population Growth The population of the MENA region is growing 50% faster than the global population as a whole. Disease Healthcare improvements mean that people in the MENA region are living longer and less likely to die of contagious diseases. However, increasing longevity, unhealthy diets and other lifestyles factors mean that the disease burden attributable to chronic non-communicable diseases is increasing. As such diseases are often more expensive to treat, the value of the market is also increasing. Robust Economics GDP per capita, one of the key drivers of healthcare expenditure, is increasing across the MENA region as a whole. At the same time, the Middle East is generating an increasing proportion of global GDP. Secondly, over and above the intrinsic growth of the MENA private equity industry, 2005-2007 saw a significant increase in funds committed to private equity worldwide. A substantial proportion of this has yet to be invested. While there may be some repatriation of international funds from the Middle East, the domestic financial services industry has relatively limited exposure to losses from sub-prime assets and there is no rational reason for domestic funds to be withdrawn. Many of the opportunities in the healthcare sector will come from structural changes in the industry: Increasing private sector participation in healthcare provision as governments seek to manage the costs of greater demand for healthcare. A need for expansion and consolidation of healthcare provision across the region, combined with an increase in the quality of the infrastructure and services. Consolidation in healthcare services and vertical integration in the pharmaceutical industry as businesses are seeking economies of scale. This may be encouraged by the liberalisation of restrictions on foreign ownership and investment. The growth of private health insurance schemes following the introduction of sharia compliant health insurance products.
MENA healthcare faces a number of challenges though. A shortage of well trained medical professionals and a pharmaceutical industry that is essentially dominated by contract manufacturing under foreign licenses, combined with relatively poor IP protection. Notwithstanding the obvious challenges, we believe however that the opportunities outweigh the problems and that the region is one of the most attractive regions for healthcare investment in the world.
39
Thought Leadership
Shailesh Dash
Senior Vice President of Asset Management and Alternative Investments, Global Investment House
Likely sector focus for 2009

Rapidly falling hydrocarbon prices and freeze in the credit markets have put the Gulf boom on hold. Economic growth is set to slow sharply and 2009 may feel like recession in much of Gulf but the economic deceleration is not likely to lead to derailment. We believe the region is well placed to weather the impact of this abrupt downturn due to the massive surplus the region has generated over the last five years. The impact of the current downturn will be felt on many sectors but a few sectors will emerge stronger once the market conditions normalize. Even in the current environment, investment in certain sectors can provide significant return over the next three to five year horizon. We see value in defensive sectors the fundamentals of which are backed by an attractive demographic profile, increasing per capita spending, high growth, entry-barriers, and low business cyclicality. Healthcare, education and logistics remain on the top of our priority list. We remain optimistic on broader services and consumer sectors and maintain an opportunistic stance on the commodity sector. Private sector penetration is low in the region with only around 25% of the total healthcare spend contributed by the private sector. This is expected to increase with the development focus of GCC Governments, who are promoting private sector participation in healthcare. We estimate healthcare spending in the region to increase at a CAGR of 8-12% up to 2025. The transportation and logistics services sector is a logical play on the increasing trade activity in the region, which has grown at a CAGR of 20% between 2002 and 2007. Our region enjoys a geographical advantage by being situated between Europe and Asia. There is demand out there for quality education and private sector penetration in the education sector will increase in the coming decade. For example, today less than 10% of the schools in Saudi Arabia are under the private sector. Although the petrochemicals, steel, fertilizers, and aluminium sectors are likely to face margin pressures in the near term, these industries enjoy international competitive advantage as a result of the regional gas price economics and we remain opportunistic. We believe 2009 presents a lifetime opportunity to acquire solid businesses at compelling valuations which could provide significant return potential by 2012 2013.
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4.7 Exits and IRR
PE ex i ts i n the la s t 5 y ea rs 2004 - 2008
8 1
S e ll S e ll S iz e Expe cte d IRR achie ve d Ye ar '$ m illion fund r e tur n on e xit 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2,500 313 70 53 49 45 15 12 11 10 3 3,080 20% 30% n/a n/a 20% 20% 20% 20% 20% 10% 20% n/a n/a 52% n/a n/a 82% 98% 111% n/a 24% 21% 89% n/a 1,400 177 33 18 33 17 3 6 8 5 1 1,701
$ million
Note: Sales consideration represents exit price and is not comprehensive. Source: Zawya Private Equity Monitor
The increase in the value of sale activity from 2007 to 2008 is due to one major exit made for $2.5 billion. Excluding this one-off transaction, sale size has decreased by approximately 60 percent. Given the current economic downturn, fewer private equity funds have been willing to make exits as multiples have shrunk in size. It is widely felt by industry experts that exiting in the current climate will not provide the returns the industry has traditionally targeted. IPOs are losing popularity as an exit strategy due to depressed stock markets.
P E ex it a c tivity in 2008
Fund Nam e Infras tructure and Grow th Capital Fund A braaj Buyout Fund II S HUA A Partners Fund I, L.P. NBK Capital Equity Partners Global Opportunis tic Fund II Unicorn Global Private Equity Fund I The Pre-IPO Fund The Pre-IPO Fund The Pre-IPO Fund Private Equity Fund The Pre-IPO Fund T otal e xits in 2008 S e ctor Indus trial Egyptian Fertiliz ers Company Manufacturing National A ir S ervices Trans port Damas Jew ellery Retail Y udum Foods Food and beverage Reliance Petroleum Limited Oil and Gas Ormix Depa Gulf Navigation Holding Ithmaar Bank A l Farabi Inves tment Company A lumco- UA E Cons truction Cons truction Oil and Gas Financial S ervices Financial S ervices Indus trial Manufacturing T ar ge t C om pany Buy Buy S iz e Ye ar '$ m illion 2007 2006 2005 2007 2006 2006 2005 2005 2006 2004 2005
Note: n/a: Not available Source: Zawya Private Equity Monitor
6 1 4 1 2 1 0 1 8 6 4 2 8002 1 1 sn oi t ca snar t f o on 7002 6002 3 1 ezi s lleS 5002 3 4002 3
7 1
005,3 000,3 005,2 000,2 005 005, 1 000, 1 -
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Regi on s p l i t of P E exi ts i n the l as t 5 years (2 004-2 008 )
After excluding the major $2.5 billion sale in 2008, the proportion attributable to Egypt decreases to 46 percent, followed by Saudi Arabia at 25 percent.
S ector s p l i t of P E exi ts i n the l as t 5 years (2 004-2 008 )
From a sector point of view, after excluding this major sale, activity in the Industrial Manufacturing sector is minimal and the majority of exits relate to Financial Services, Transport and Oil and Gas.
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Num ber of ex its by ty pe

8 1
Number of exits
Public market offerings appear to be the most desired exit option for private equity players, representing approximately 30% (or 13 transactions) of the total exits in the past four years. Trade sales have also been relatively common, representing 23% or (10 exit transactions) over the period. Both these options are expected to be increasingly difficult in 2009.
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Thought Leadership
Steven Novick
Head of MENA Financial Sponsors and Sovereign Wealth Funds Coverage, Credit Suisse
What are the likely exit options, if any, for MENA-based private-equity backed businesses in 2009?
Exit options in 2009 will remain limited to businesses in the Middle East that: - continue to grow on both the top and bottom line; just cutting costs to grow EBITDA will not attract the most desirable suitors - operate in highly desirable, mostly defensive sectors such as oil field services, healthcare, education, telecoms, insurance - have been well managed from an operational and value creation perspective - have not been overly levered, although its a known fact that substantial debt packages have not been readily available to the vast majority of buyout firms in the GCC International buyers, and to a lesser extent, local investors, flush with cash and the skill and vision to capitalize on the lack of confidence of others will be the main victors in sell side processes. The processes will tend to be negotiated rather than broad based auctions. Such cash rich corporates will be able to take advantage of the current market dislocations to expand their strategic and geographic footprint in the Middle East. Buyers will also have the benefit of less competition for most assets and sellers will have more realistic expectations. Recovery of the IPO market The IPO window for portfolio companies based in MENA is likely to remain shut for most, if not all, of 2009. This is despite the strong nominal GDP growth estimates for the region at close to 4%, vis--vis 8% for China and 5.5% for India - the only three areas in the world expecting substantial growth. At present, global emerging markets investors are still coming to terms with the significant losses experienced last year and many remain in cash, in some cases up to 40%. They lack confidence, not only in the markets, but also in their own ability to select winners. Regional investors, who have been especially hard hit, will likely remain cautious for the medium term. However, private equity firms should keep a lookout for one or more of the following signs that the IPO market is recovering: i) a stabilization in global and local equity markets; some in the Middle East were down as much as 70% in 2008 ii) a general rebound in share prices; slow and steady appreciation is preferable and more sustainable iii) improved inflows into MENA funds iv) a pick up and general improvement in the corporate bond (investment grade) market. Tougher times Markets will remain extremely challenging this year, and most likely the next as well. The crisis will continue until further hard choices are made. Measured decisions will have to be taken with a keen eye on the future. Balance sheet restructurings of both businesses and governments will need to be the primary focus to address past errors. Even with leaner businesses, each private equity firm will have to change the way they think and operate. Monthly financials will need to give way to weekly rolling cash flow statements - in 10-week increments. This will help to provide each investor a much clearer picture of the real cash position of each and every company in their portfolio, including those that appear to be healthy, thereby helping to determine a strategic payment plan, in order to give them the best chance to survive in a potentially long, drawn out recession.
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Thought Leadership
Yahya Jalil
Head of Private Equity, The National Investor
The Viability of IPOs & Other Exits In The Coming 12 Months

Over the past 4 years, IPOs in the MENA region have represented a meaningful and highly lucrative source of exits for private equity firms. In 2008 for example, the IPO of Depa Ltd provided an exit with a value of nearly 5 times the original capital invested by private equity firms (including TNI, Gulf Capital & Global) in 2006. In 2008, 6 of the 20 largest IPOs worldwide were based in the MENA region, led by the $2.8 billion IPO of Bank Alinma in Saudi Arabia. This all changed in the last quarter of 2008, which saw IPO volumes diminish meaningfully, driven by greatly reduced liquidity of and widening losses on the existing investment portfolio of financial investors. Today, as many as 100 GCC companies have delayed their IPOs, which were targeted to raise $20 billion in capital during 2009. There is little doubt therefore that 2009 will be a difficult year for MENA private equity firms to achieve exits through IPOs, with the earliest recovery likely to be in the first half of 2010. The price of hydrocarbons is always a major driver of liquidity in the region, and if oil prices climb back to $70 80 a barrel, this recovery may come a quarter or two sooner. So how might regional private equity firms achieve liquidity in 2009? The reality is that there are likely to be few exits at all in 2009. GPs will need to focus their attention on preserving value in their portfolio companies, i.e. making sure these companies (a) improve collections of receivables and manage working capital more efficiently; (b) can refinance any indebtedness coming due; (c) sell any non-core assets to keep cash at hand; and (d) create operational efficiencies. Sales to strategic buyers are also unlikely to provide many exits because corporates and strategic buyers themselves dont have much liquidity, and are equally keen to preserve cash for the core businesses. There is however, one silver lining on the cloud: Secondaries, i.e. sales of portfolio companies to (a) other private equity funds / firms, and (b) to specialist funds, such as Coller Capital, that specialize in buying portfolio companies of private equity funds which need to create exits. However, it is very much a buyers market, so the valuations of such exits are likely to be modest.
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5.
The future of Private Equity in MENA

and the impact of the financial crisis
5. The future of private equity in MENA
5. The future of private equity in MENA and the impact of the financial crisis
After three years of stellar growth, the nascent regional private equity industry is facing its first major predicament. This is not unexpected in the regional industrys journey to maturity Asian private equity had their own crisis in the late 90s and American private equity faced their own in the 80s. Hopefully, the industry will emerge stronger and more resilient as it consolidates and accumulates experience. It is as difficult to predict the path that the industry will follow as it was difficult to predict the dramatic events since September 2008. Nevertheless, we will attempt below to tie together some of the facts and trends that emerge from Chapters 4 and 7. Liquidity is high in the industry as a whole: The industry enters this crisis with more than 60% of the funds raised not deployed -- or around $11 to $13 billion out of $20 billion raised. So it is likely that the industry will have enough cash to outlive a dry two years of fund raising that is assuming that the funds limited partners fulfil their commitment when capital calls come in. For example, from the $4.9 billion raised in 2007 vintage, only around 25% has already been deployed, and 2008 vintage has deployed less than 10%. Fund raising will be difficult, and some fund managers will struggle: As liquidity recedes, fund raising will become increasingly difficult. Those private equity houses relying on 2009 to raise a new fund will be facing strategic challenges. With empty coffers and some portfolio companies likely to underperform, such fund managers may merge or close shop. It is likely that the number of players will shrink in the coming two years. Many international fund managers will retrench closer to home base: In 2007, Dubai was declared as the fourth capital of private equity. Since then, two international players Carlyle and Investcorp raised dedicated regional funds, and many others started crafting their regional strategy. Two years later, many global private equity players have started to retrench as a result of the crisis. Carlyles closing its East European operation and Cerberus closing its Hong Kong office are two examples of many instances. Consequently, it is expected that global players will reduce their interest in the region. Will this retrenchment be temporary if the region fares better than others? The crisis may not induce a significant decline in valuations or an increase in deal flow: A drop by a third in value and number of investments in 2008, despite the record size of funds under management, may be a signal of a structural weakness in the regional private equity model. With limited exceptions, valuations may not decline to match expectations. Furthermore, with the dearth of leverage finance, single digit growth and no arbitration with public markets, private equity houses may struggle to formulate an investment case for many of the opportunities they will encounter. Sensing these limitations, many funds have extended their territories beyond MENA into Turkey, Southeast Asia, and most recently Africa. In the GVCA survey, GPs are evenly split whether the crisis will yield more or fewer deals in 2009. The coming two years will be pivotal in establishing whether the MENA region and particularly the GCC does generate enough deal flow to sustain the liquidity levels in the industry.
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Healthcare will be the main focus for 2009: Invariably, healthcare will be the focus in 2009 after it has received most private equity dollars in 2008. The sector has attracted 16% of all investments in 2008, and it will be the focus of 44% of GPs in 2009. Other sectors that will attract attention are education, utilities, and wholesale/retail. Yet, healthcare may exemplify the previous point: its valuations have not decreased significantly and deal flow has not increased due to limited opportunities in the sector. Will private equity players be creative enough to formulate new investment strategies to allow them to deploy significant dollars within these limitations? Billion dollar funds will compete for deal flow but may also open new frontiers: With more than 4 billion-dollar-plus funds operating in MENA, private equity may push the envelope into new frontiers. Privatization of mega public companies, public-to-private transactions, or takeover of core family conglomerates may be a reality in 2009/2010 as these enterprises come under financial stress. Deal flow for such funds has not been robust so far, and only 17 transactions above the $100 million mark were closed in MENA over the past decade. If new frontiers do not open up for such funds, larger funds will compete aggressively for limited deal flow that fits their funds size. Control buyout model is gaining ground: As the winds of growth slow down and the motivation of growth capital weakens, the tendency shall be towards more control in order for private equity players to implement business plans that extract maximum shareholder value and allow them to meet their target returns. In 2005, only 3% of the transactions were control buyouts. In 2008, 26% of the transactions volume and half of the transactions value were control buyouts. Going forward, will more and more private equity players insist on control? Returns will average up because most of the investments will be made post-crisis: Since the most recent funds have made very few investments, and assuming that many of these investments have been made at above-average valuations, it is most likely that funds that overpaid in the past will be able to offset their overvalued investments if they invest wisely in 2009/2010. Move towards trade sales and away from IPOs: Pre-IPO plays have dominated the private equity scene since 2005. With public markets practically shut, private equity players are directing their portfolio companies towards a trade sale. As a matter of fact, 61% of GPs believe that an exit in 2009, if any, will be a trade sale. In addition, 33% of the GPs are delaying or cancelling IPOs for their portfolio companies. But with many trade buyers under stress and with the industry floating on liquidity, will that trade sale desire translate into the birth of a secondary market?
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Thought Leadership
Anis Bibi, Executive Director & Jamil Brair, Director, Shuaa Partners Ltd.
Private equity adapting to todays environment

The current economic downturn is unprecedented in recent times and presents numerous challenges for the private equity community across the MENA region in 2009. Globally, as well as regionally, PE practitioners are faced with an investment climate which is characterised by: (i) a decrease in consumer spending and a reduction in overall demand for services; (ii) a decline in household wealth; (iii) significantly reduced liquidity levels at the corporate, HNWI and institutional investor level; and (iv) a paralysed financial system that requires $ trillions worth of government injections and stimulus packages to rectify the excesses of the past few years. These factors have serious implications for the MENA-based PE community in 2009 and beyond. In order to deal with these challenges, we will need to: Keep a closer eye on our portfolio companies: PE companies must be prepared to increase the level of hands-on operational involvement in order to ensure that portfolio companies business plans fully reflect the new economic realities and that their liquidity needs are fully met; Remain in close contact with our LPs: Although we expect increasingly attractive investment opportunities to emerge as asset valuations continue to fall, liquidity constrained LPs may struggle to meet capital calls. Being sensitive to the LPs current conditions will cement existing relationships; and Work harder to achieve our exits. Overall exit activity will be more challenging since the IPO markets, which have traditionally been the preferred exit route, are effectively closed for the time being. GPs will have to work harder to ensure other exit routes are available to them. Whilst the current economic environment is challenging, it also presents significant opportunities for well run firms. In an era of high interest rates and closed debt markets, corporations seeking traditional financing options such as equity financing through IPOs and debt financing are expected to turn to PE players with access to equity capital. In terms of investment opportunities, we believe valuations will become even more attractive and we are already beginning to see this in terms of our existing deal flow. Funds raised and/or invested during economic downturns have tended to outperform and, in our opinion, demand by MENA companies for minority and/or growth capital investments (which is the prevalent form of PE transaction in this region) will only increase in the medium term.
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Thought Leadership
Serkan Kizil
Head of private equity, Abu Dhabi Investment Company
Ensuring this private equity vintage bears fruit deal making in difficult times
As the global economic crisis unfolds, the 2009-2010 vintage is being touted as a once-in-a-lifetime chance for private equity investors to snap up companies cheaply and sit back as investments mature into huge profits. If only it were that easy. Now more than ever, fund managers need to earn their closely scrutinized fees. It is time to be conservative, rigorous, and build in protection linking investment to company performance. With banks reluctant to lend and capital markets all but closed to equity and debt issuance, sellers are springing up. In the Middle East and North Africa (MENA), they tend to be family firms eager to funnel funds from peripheral businesses into core operations or new ventures. Deal flow is not a problem. But with much of the world sliding into recession, almost every risk is out there: Torrid consumer confidence, a lack of liquidity, protectionism, volatile currencies, unpredictable policy. So although many distressed assets will hit the market, I prefer to be defensive and look at areas that can best weather downturns -- healthcare, education, telecoms, food and drink, and defense. However, even with the most promising companies, investors in the current climate need to put even more emphasis on rigorous due diligence and deal pricing. Turn every stone, foresee every threat to a business plan, and when assets flood the market, avoid deal fever paying a reasonable price will make for easier exits in weak markets. Deal structures need to be carefully designed. While banks will still lend to reputable names, especially for the small and mid-size deals we look for, vendor notes can play a financing role. These debt securities, offered by sellers, can replace the traditional debt component in a deal or bridge funding gaps. Importantly, the buyer can link payment of a note to company targets, creating downside protection. Similarly, earn-out structures allow an investor to pay a lower fixed amount upfront, and link further payments to how a company measures up to agreed forecasts. My mantra is look for distressed sellers, not distressed assets. Our deals will be for companies with solid and sustainable cash flows, but it is vital to keep tabs on promising growth stories.
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6 Sovereign Wealth Funds in the MENA region

6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 Summary SWF Profiles SWF Investments Sector focus Regional focus Exits Development in Regulatory Framework Whats next for SWFs?
6. Sovereign Wealth Funds in the MENA region
6.1 Introduction and Summary

Sovereign Wealth Funds (SWFs) have been catapulted into the global financial spotlight in 2008, following a string of major investments in Western financial stocks and their rapid rise in status, joining the ranks of other significant investor classes. SWFs are not a new phenomenon, though. They have existed since 1953 with the establishment of the Kuwait Investment Authority (KIA). However, their exponential growth in recent years, as well as their expected role going forward has captured the interest of the global financial community and sparked concern from recipient markets regarding their transparency, intentions and future role in the financial system. Due to transparency limitations, the size of SWFs is subject to debate. According to a Deutsche Bank report in October 20086 , the total size of SWF assets under management worldwide is $3.6 trillion, compared to approximately $500 billion in the early 1990s.
K n ow n S W F pres en ce a roun d the w orld
M iddle-Eas t S W F brea k -dow n
The same report states that the Middle East has the highest concentration of SWF assets worldwide at $1.6 trillion (or 46% of total SWF assets), the majority of which is understood to be held by the Abu Dhabi Investment Authority (ADIA). SWFs have grown rapidly in recent years and are expected to be major players in the future financial landscape. The rise of SWFs has been primarily driven by excess commodity exports revenue following an increase in crude oil prices from around $30 a barrel in 2004 to over $140 in 2008. This has resulted in significant cumulative current account and trade surpluses for oil producing nations, who have taken the initiative of directing these balances towards funds with specific investment mandates. It is expected that Gulf SWFs decreased in value by approximately 20% in the six months to December 2008 as a result of the credit crisis7.
6 Steven Kem SWFs and foreign investment policies an update Deutsche Bank Research, 22 October 2008 7 Rami G. Khouri, Remove the veil from Arab wealth funds, The Daily Star, 20 December 2008
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Historically SWFs more or less flew under the radar and were relatively conservative, concentrating on low risk instruments such as government bonds and bank deposits. However in more recent years, there has been a growing trend to utilise SWFs as a diversifying vehicle by investing in private equity type deals, real estate, commodities and hedge funds, still generally adopting relatively passive minority investments with long term horizons. The rapid growth of SWFs in recent years as well as the adoption of more aggressive and publicised investment strategies has translated into a higher degree of public interest and scrutiny accompanied by growing concerns regarding SWFs compliance with principles of good governance and transparency. The issue came to a head in late 2007 and early 2008 following major investments made by SWFs as part of the financial bail-out programs of Citigroup and Merrill Lynch. Unlike the hostile response to DP World's American ports deal, the ADIA-Citigroup deal faced little or no government resistance mostly due to the severe financial difficulties being experienced by the financial sector, the critical capital that SWFs were able to provide at the time, the fact that individual investments were minor and in some instances non voting, and that funding was shared by a range of SWFs. The role SWFs played in the 2007-2008 financial bail-out programs was a milestone for the industry and symbolic of a new paradigm shift in the international financial markets. SWFs had displayed qualities of constructive and responsible market participants and were perceived to be complimenting private equity and hedge fund managers as the new deal makers in international banking. As it turns out there has since been a significant decrease in the level of participation by SWFs in further bail-out programs, in line with a general decrease of investment activity towards the second half of 2008. Beyond the Financial sector SWFs were also actively investing in Real Estate, Hospitality, Leisure and Tourism, Technology, and Energy. As the year progressed, there was a clear trend to refocus resources towards the region, as opposed to investing in Western markets. Nevertheless SWFs are under pressure to become more accountable and to adhere to higher standards of governance. Western markets are calling for SWFs to ensure their investment decisions are shown to be taken on financial grounds rather than being motivated by political, strategic or other non economic motives. To this end, the International Working Group of Sovereign Wealth Funds (IWG) convened by the International Monetary Fund (IMF) has developed a list of 24 key principles, commonly referred to as the Santiago Principles, by which it is hoped SWFs will be governed and through which Western recipient markets concerns can be assuaged.
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6.2 SWF profiles

Due to transparency limitations, the precise size of SWFs is subject to debate. The graph below depicts the known or presumed size of the SWF (bubble size in $ billion) and the level of known investment activity in the last three years.
S W F s um m a ry by fun d s ize a n d a ctiv ity in the la s t three y ea rs (2006-2008 )

4 1
12 10 13 60
Number of transactions
3 10 50
000,92 000,42 000,9 1 000,4 1 000,9 000,4
Q IA
ADIA
M ubadala
DIC
DIFC
Source: Zawya Private Equity Monitor and SWF Institute website ADIA dwarfs other SWFs with an estimated size of $875 billion. Established in 1976, ADIAs mandate is to diversify the emirates wealth away from oil, by investing outside the UAE. Among other asset classes, ADIA focuses on large direct investments in public companies, as well as LP investments in private equity funds. Beyond individual co-investments with trusted funds, ADIA typically does not pursue direct private equity investments. Abu Dhabi Investment Company (ADIC) has been established as a spin-off from ADIA to focus on investments within the UAE and throughout the Middle East. In October 2008, ADIC announced two funds targeting third-party capital. The funds focus on infrastructure and private equity investments in the MENA region. The next largest SWF is the Kuwait Investment Authority (KIA) whose objective is to invest surplus oil revenue and achieve long term returns to provide alternative sources of government revenue when the countrys oil sources are depleted. KIA manages and administers the Future Generations Fund (which receives 10% of all state revenue annually and reinvests all investment income) and the General Reserve Fund (the vehicle for all government assets, revenue and expenses). KIA disclosed in July 2007 that its total holding amount was $213 billion ($174 billion in FGF and $39 billion in GRF). KIA targets large direct investments in public companies. Some of its major investments include acquiring stakes in BP, Daimler, Industrial and Commercial Bank of China, Merrill Lynch, Visa and Citigroup. It also sponsored a separate company, NTEC, focusing on venture capital funds and direct investments.
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The Qatar Investment Authority (QIA) has an estimated size of $60 billion derived primarily from exports of Liquefied Natural Gas, but with a mandate to invest domestically and internationally to curtail reliance on energy price volatility. As a result, the fund predominantly invests in international markets (US, Europe and Asia) and within Qatar outside the energy sector. The fund focuses on three asset classes; real estate, private equity and investment funds. Other SWFs and investment companies owned by the government and/or ruling families in the region include Mumtalakat (Bahrain), State General Reserve Fund (Oman), Public Investment Fund and SAMA (Saudi Arabia), DIC, ICD, Istithmar, Mubadala and RAKIA (UAE).
6.3 SWF investments

Given the limited transparency in disclosure of SWF transactions, our analysis is limited to the investments in the region which have been publicly announced. As such, the trends in our analysis might not be representative of the entire market. As an example, according to Thomson Financial, Gulf based sovereign wealth funds spent $83 billion on 173 deals in 2007 compared to $52 billion on 30 deals with known figures per our analysis.
In vestm en t activity by S W F 2003 thru 2008
52 000,03
$ million
ar
ub ad ala
IA
FC
ta lak at
IA
DI
IC
tit hm
AD
AD
DI
Trans action s ize

No. of trans actions
Over the last six years, QIA and ADIA have led SWF investments in terms of deal size by investing approximately $25 billion and $17 billion, respectively. Dubai based SWFs have been the most aggressive deal makers over the period, with Istithmar and DIC completing 21 and 15 deals respectively.
55
um
Is
th e
KI
rs
02 51 01 5 5 2 2 6 5 51 41 6 9
12 000,52 000,02 000,51 000,01 000,5 -
No. of transactions
56
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6.4 Sector focus

S W F i n v es tm en ts by s ector
000,06
$ million
Financial Services Energy
Cons umer G oods Healthcare
R eal Es tate Travel & Touris m
M ining and M etals Others
The last four years have seen a major shift in investment focus, moving away from the more traditional real estate and basic materials sectors to diversify investment portfolios and take advantage of opportunities to invest in the traditionally liquid markets of the West. The Financial Services sector was the main beneficiary of this trend, receiving over half of the known amounts invested directly in companies by SWFs both in 2007 and 2008. The Hospitality, Leisure and Tourism, and to a lesser extent, the Technology sector showed an increased level of activity as well. Last but not least, the Energy sector saw a number of deals done both in Oil & Gas as well as in Renewable Energies. Financial Services The financial sector has become a major focus in late 2007 and throughout 2008 due to a combination of significant investments in Western banks and other financial institutions, a battle for control of European stock exchanges and initiatives to provide capital to local financial institutions. The decision by SWFs to invest heavily in financial institutions in the US and EU in the wake of the financial crisis may have been driven by a range of factors. Historically financial services investments have been regarded as an appealing investment target and the share market collapse in 2007 represented an attractive, albeit volatile, option for long term investors. Furthermore, participating in major bail-out programs for renowned institutions such as Citigroup and Merrill Lynch provided both strategic and reputational benefits. Major 2007 investments in Western financial institutions include ADIAs investments in Citigroup and Blackstone for $7.5 billion and $3 billion respectively, QIAs $5.6 billion investment in Nordic and Baltic exchange operator, OMX, DICs investments in HSBC for $1billion and its 9.9% stake in the hedge fund group Och-Ziff Capital Management for $1.2 billion as well as Mubadalas 7.5% equity stake in Carlyle Group for $1.4 billion.
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5002
000,05 000,04 000,03 000,02 000,0 1 -
In 2008 QIA provided $5 billion in much needed capital to Barclays in exchange for a 6.4% stake and made a minor investment in Credit Suisse for $500 million. KIA participated in bail-out programs for Citigroup and Merrill Lynch for $3 billion and $2 billion, respectively and invested $500 million in Visa. The dominance of investments in the financial sector over the last two years can also be attributed to the battle between Dubai and Qatar for control of European stock exchanges as each competes to establish themselves as the regions financial hub. In September 2007, a battle for control of both the London Stock Exchange and the Nordic and Baltic stock exchange operator, OMX took place with QIA taking a 14% stake in LSE for $5.6 billion and a 10% stake in OMX for an undisclosed amount, which it was later forced to sell. At the same time DIFC (represented by Bourse Dubai) acquired a 28% stake in LSE as well as a 19.99% stake in the combined Nasdaq-OMX entity for a total investment of $6.3 billion as part of a complex agreement with the American exchange operator. This battle for regional supremacy is a good example of an investment strategy based on strategic rather than purely financial grounds as, according to the Sunday Times, the shares in both LSE and OMX were pushed to astronomical level. One commentator remarked: This is not about how much is a Scandinavian exchange worth, or how much the LSE is worth. This is about a race to be the biggest financial centre in the Gulf a key to which is having a global stock exchange. Theres only room for one between London and Japan, and any amount of cash is worth paying to get it.9 SWFs have also contributed significant capital towards boosting their own financial sectors such as Mumtalakats 49% investment in National Bank of Bahrain for $1.7 billion. In 2007 ADIC invested $1.1 billion in the establishment of Crescent Bank as part of initiatives by the government to provide the necessary finance for development projects. QIA is in the midst of a program to recapitalise Qatars commercial banking sector and the Omani government set up the Investment Stability Fund worth $390 million in January 2009 to boost investor confidence in the Muscat Securities Market. KIA was asked last November to inject up to $13 billion in the KSE in an attempt to prop up the ailing stock market but the likely investment has decreased significantly. Real Estate In 2008, the QIA fulfilled its ambitions to diversify its holdings and take advantage of the subprime mortgage crisis by investing in the UK real estate sector. The Qatar based SWF invested $1.6 billion in Trillium, the outsourcing arm of the UKs largest real estate investment trust and acquired Chelsea Barracks for $1.4 billion. Other major 2008 investments in real estate included ADICs investment in New Yorks Chrysler building and DIFCs equity stake in the Dubai Pearl Project, both for $0.8 billion.
9 Ben Laurence and Louise Armisted Rising Power of the Sovereign Funds, 28 October 2007
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Hospitality, Leisure and Tourism Hospitality, Leisure and Tourism was a major focus, especially for Dubai based SWFs as the emirate continued strengthening its presence as the centre for tourism in the Gulf region. In 2008, DIC invested in The True Group, and Istithmar acquired an equity stake in Cirque du Soleil and ESPA International, a spa consultancy for hotels and resorts worldwide. In addition, Mubadala invested in Kor Hotel Group, and the Oman Investment Fund acquired 50% of Jurys Inns for $300 million. Technology In 2008 Mubadala accelerated the implementation of its vision of creating a technology hub in Abu Dhabi. Beyond the pioneering Masdar initiative, which is elaborated below, Mubadala bought equity stakes in General Electric for $200 million and in Advanced Micro Devices for $314 million. Energy Also in the Energy sector Mubadala was very active in 2008, acquiring Pearl Energy for approximately $800 million, as well as an equity stake in Royal Dutch Shell for an undisclosed amount. The Masdar initiative started by Mubadala has the ambitious goal of positioning Abu Dhabi as a world-class research and development hub for new energy technologies, by driving the commercialisation and adoption of technologies in sustainable energy, carbon management and water conservation. In 2008 Masdar executed multiple transactions both within its Project group and its Cleantech fund, including a $2 billion investment in a thin-film solar panel facility, and multiple venture investments both in Europe and the US.
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6.5 Regional focus

S W F i n v es tm en ts by region
60,000
50,000
40,000
$ million
30,000
20,000
1 0,000
2005 2006 2007 2008
U nited Kingdom
U nited States
U AE
Sweden
Canada
G ermany
B ahrain
Others
As SWFs have grown in size and relevance, both North America and Europe have offered the widest selection of investments and traditionally a high level of liquidity, able to absorb large scale investments. In 2007 and 2008, $17.8 billion and $13.2 billion were invested in financial institutions in the US and the UK respectively, providing much needed capital to the debt stricken sector. Both countries have also been targets for SWF investments in the real estate, tourism and technology sectors. SWFs have also invested within the region, with the establishment of Emirates Aluminium ($4 billion) and Crescent Bank ($1.1 billion) and investments in National Bank of Bahrain ($1.7 billion) and the Dubai Pearl project ($1.6 billion). The table below shows a trend towards more investments in the MENA economies.
S W F inves tment foc us s hift in 2008

$ m illion Wes tern economies MENA economies A s ian economies T otal 2005 3,765 1,505 50 5,319 T r ans action s iz e 2006 2007 9,608 42,622 550 7,190 748 2,207 10,906 52,019 2008 16,093 5,367 983 22,443 T r ans action s iz e as a % of total 2005 2006 2007 2008 70.8% 88.1% 81.9% 71.7% 28.3% 5.0% 13.8% 23.9% 0.9% 6.9% 4.2% 4.4% 100.0% 100.0% 100.0% 100.0%
In terms of future plans, QIA intends to invest around 40% of its real estate allocation in Asia and KIA plans to triple its investments in Japan to $48 billion10 .
10
Dylan Bowman, Kuwait to triple Japan investment to $48 billion, Arabian Business, 3 August 2008
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6.6 Exits
Note: n/a Not available Source: Zawya Private Equity Monitor
Due to the long term investment horizon of SWFs as well as their relatively rapid expansion in recent years, exits from SWF portfolio companies are limited. Market perception is that they prefer to have long term, risk-averse portfolios and tend to pursue buy-and-hold strategies, in line with their long term horizons and are willing to step in when asset prices fall. In addition, given the development of the public and private equity markets worldwide, exit activity in 2008 was very low. As a side note, a number of SWFs use derivatives to hedge large long positions in public companies, thus creating a synthetic exit. Those activities, though, are not transparent and no detailed information is available to the public.
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6.7 Development in regulatory framework

In response to global concerns regarding the opacity of SWFs and the need for a regulatory framework to govern the industry, the International Working Group on SWFs (IWG) reached preliminary agreement on a list of 24 key principles endorsed by the IMFs International Monetary and Financial Committee, addressing transparency, governance and fair competition within the private sector. The IWG comprises members from MENA countries including an ADIA representative, ensuring that SWFs will play a key role in establishing this new framework. The guidelines, popularly known as the Santiago Principles, will require SWFs to disclose the funds' source, legal basis, structure and purpose to the public as well as the legal relationship between the SWF and other state bodies. By laying out its investment philosophy, SWFs will be able to assuage global concerns and assure lawmakers in foreign countries their intentions are purely commercial and not for political advantage. These principles are designed to provide guidance for SWFs relating to appropriate governance and accountability arrangements, as well as guide the conduct of appropriate investment practices. Following the voluntary adoption, IWG and IMF will need to provide sufficient oversight to ensure the successful implementation of these principles. Conversely, the pressure is now on the OECD and Western governments to present guidelines on investment policies in recipient markets to clarify what constitutes strategic and critical sectors, which exclude or restrict SWF investment on national security or other grounds. These policies should promote open and fair markets with minimal political intervention. Acceptance of these principles as well as reciprocal developments towards transparency from recipient markets supporting open investment policies will be critical in developing the framework required to promote capital investment and liquidity in troubled Western markets.
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6.8 Whats next for SWFs?

Given the inflated oil prices in recent years, it is not surprising that SWFs have played an increasing role in providing global liquidity, as the petrodollars have been recycled back into global financial markets. The current downturn in oil prices is likely to adversely impact the already crippled global economy, by restricting liquidity further. Regardless of the impact of fluctuations in oil prices in the immediate future, the influence and significance of SWFs have never been so prominent, not because of proposed regulation over transparency and governance, but because of the global demand for capital as companies struggle to stay afloat amid the global financial crisis. It would seem that the rush to invest in financial institutions has reached its peak and SWFs are no longer perceived to be the saviours of Western banks. Due to the size of their investments as part of the financial bail-out schemes in late 2007 and early 2008, SWFs may now focus on diversifying the increased concentration risk within their portfolios. Furthermore, it is clear that since these bail-out programs, share prices have since declined further, resulting in significant unrealised losses for SWFs. Emergency measures, bail outs and market consolidation may significantly impact these investments in the immediate future. According to a report in January 2009 by the New York-based Council in Foreign relations, the value of foreign assets in portfolios of the GCC states fell by $100 billion in 200811 , not including the personal holdings of ruling families. These expected losses are thought to surpass excess annual oil revenue earned during years of elevated oil prices. Gulf-based SWFs have been additionally affected by their exposure to more sophisticated fixed income products such as collateralised debt obligations (CDOs), resulting in further losses. Low oil prices have compounded the problem as cash is required to support domestic markets and economies. It is expected that the focus for SWFs in 2009 will be to bed-down existing portfolios, stabilise their own markets and economies and look into emerging markets for diversification. The Chief Executive of DIC, Samir Al Ansari has been quoted in stating that the funds primary focus in these regions is to protect existing assets rather than acquire new ones. It's about return of equity rather than return on equity11. Despite traditional mandates of diversifying assets away from commodity based assets, it is expected that SWFs will invest heavily in domestic markets in the immediate future. Already KIA has provided $400 million in capital to Gulf Bank after it suffered losses from derivatives-trading and a Kuwaiti state fund thought to be approximately $5.4 billion in size has been launched to stabilise the stock market. Furthermore the proposed solution for corporate debts also includes a recommendation that the KIA should deposit between $17 billion and $34 billion in local banks over a 12-month period and the funds should be used to finance local companies at low interest rates.
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11
Andrew Critchlow, Mideast Wealth Funds Bring Chill To Davos, The Wall Street Journal, 27 January 2009
In addition, alternative investment strategies have been deployed, focusing on real economic diversification, food security, and a shifting home bias to bolster domestic financial markets and domestic growth: Mubadala has partnered with General Electric in a $8 billion reciprocal investment joint venture covering clean energy (as part of its Masdar initiative), aviation, and medical engineering and healthcare centres. SWFs from Qatar and Saudi Arabia have been exploring agricultural investments in South-East and Central Asia. Saudi Arabia is setting up a $566 million company to invest in agriculture and is looking at Sudan, Pakistan, and Kazakhstan. The QIA is doing the same with joint ventures in Vietnam and possibly elsewhere in Indo-China. The Asia-Pacific region remains on the radar for equity and real estate investments. KIA announced its intention to allocate up to $48 billion (or 20% of its assets) in Japan (predominantly real estate and equity), following a double taxation treaty. QIA has recently set up a $1bn fund with Indonesia to invest in energy and infrastructure. Qatar will contribute 85 percent of the funds for the new fund and Indonesia the remainder.
SWF investment will continue to be in strong demand, but strategies have become more cautious. Changing trends in global imbalances will continue to shape SWF development and their investments, but for the time being alternative investment strategies predominate, paying greater attention to domestic economic issues.
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Thought Leadership
Ahmed BinFahad
CEO - Istithmar World Ventures
Sovereign Wealth Funds New agents of Globalisation

Since their genesis, Sovereign Wealth Funds, or SWFs, from the Middle East have demonstrated a comparative advantage in their higher risk appetite and quick decision-making. This ability to make decisions quickly and work with a long-term investment horizon has proved ideal for companies seeking large capital inflows quickly. Gulf SWF assets are now estimated to be worth over $1 trillion. This represents a sizeable percentage of institutional wealth worldwide. SWFs have also now secured themselves a crucial role for the future as the new agents of globalisation. SWFs are key instruments for the new global financial machinery acting as a stabilizing force in the world economy. It is amply evident now that SWFs work with a clear mandate of creating and maximising long-term shareholder value. SWFs have the opportunity to use this phase as a tipping point to assess their investment scope and realign their resources to support regional champions capable of competing in the global landscape and invest in emerging sectors with a commitment to global community development. Alternative segments, especially private equity, venture and growth capital, real estate and infrastructure investment present a significant opportunity for SWFs. Istithmar World, for instance, has always been a patient investor focusing on long-term investments through its private equity and venture and growth capital divisions. While the private equity division focuses on opportunities in the consumer, industrial, education, financial services and real estate sectors globally, the venture and growth capital division, known as Istithmar World Ventures, is active in late stage opportunities in the technology, media and telecoms, life sciences, education, agribusiness and cleantech sectors According to the World Economic Forum, $515 billion will be required in yearly investment between now and 2030 to transition the world to cleaner sources of energy production. This is clearly a significant market waiting to be tapped. As an investment sector, cleantech also has the potential to address two pressing global problems energy security and climate change. Thus, cleantech investments can not only unlock excellent long-term value, but are also line with Istithmar World Ventures sense of community responsibility. A comprehensive and proactive approach to investment with a vision for global community development will undoubtedly see SWFs succeed in their new role as agents of globalisation.
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7. Survey of GPs of the MENA region

7.1 7.2 7.3 Introduction Highlights Survey results
7.1 Introduction
The third regional survey by the GVCA focuses on the GPs in the MENA region. The survey was conducted in December 2008 and January 2009 with the aim of obtaining a greater understanding of the private equity environment in the MENA region from the GPs perspective as well as an understanding as to how the impact of the current economic turmoil is perceived by key players in the region. Methodology The survey was conducted through face to face interviews with 18 cooperating GPs in the MENA region. The sample was over representative (by number) of large private equity houses, which was intended to give more weight to major GPs. The firms surveyed have investments in a breadth of industries with a wide geographical reach. Not all respondents answered all questions. Scope of the survey The scope of the survey has differed from previous years. This years target audience were the general partners and the scope was primarily aimed at providing insights into the following areas: What will be the fund raising and investment outlook? What are the return expectations for 2009? How did the crisis affect fund and investment performance? How will GPs help their portfolio companies during the financial crisis? What sectors would be the most attractive during 2009?
7.2 Highlights
Key headlines that can be drawn from the results are discussed below: Profile of respondents Most of the participants established their firms within the last 5 years and as such, their funds remain relatively young, compared to their counterparts in the US or Europe. Type of funds and geographical coverage Buyout focused funds dominate the type of funds managed and type of funds planned to be launched in 2009. Future outlook Some respondents believe 2009 will see a consolidation in the industry and a general decrease in the number of investments, despite an increase in specific sectors. Affects of the economic turmoil on portfolio Participants expect a slowdown in growth for portfolio companies in 2009. As a result, firms intend to get more involved in the management of these investments. Accordingly, the holding period will likely increase and there will be a higher focus on adding value to the portfolio.
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7.3 Survey results

1. Respondent profile
When was the company established?
Num ber of y ea rs s i n ce com pa n y w a s es ta bli s hed

Other 6% 1 year 6%
> 1 years 0 1 7%
2 years 21 %
1 years 0 6%
7 years 6% 3 years 1 6%
6 years 1% 1 4 years 1% 1
The majority of respondents are from relatively young firms (54 percent established within the last four years).
Who owns the fund management company?

Ow n ers hi p of fun d m a n a gem en t com
M ajo rity o wned by the management (>50%) 1 8%
Others 1 2%
M ino rity o wned by the management (1 -50%) 24% M anagement has no o wnership in the management co mpany 46%
The majority of fund management companies in the region have no ownership in the private equity firms that receive the management fees.
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How many funds have you managed since establishment?
53%
1 8% 1 2% 6% 6% 6%
>5
Given that major fund raising activities did not commence until after 2005, the outcome of this question is not surprising and indicates the relative infancy of the industry in the MENA region. Half of the respondents said that they have managed only 1 fund since establishment.
What are the total funds under management?

Total fun ds un der m an agem en t
>$ 1 000m 22% $ 50m 1% 1
$ 51 - $ 1 m 00m 1% 1
$ 1 m - $ 250m 01 1 4%
$ 501 - $ 1 m 000m 28% $ 251 - $ 500m m 1 4%
50 percent of respondents (nine managers) have assets under management worth more than $500 million, of which 22 percent exceed the $1 billion mark.
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How many companies are there in your portfolio?
Com pan ies in portfo

1 -1 0 4 6%
1 -1 5 9 6%
5-9 50%
20 25%
1- 4 1 3%
The majority of respondents have fewer than 10 companies in their portfolio. Interestingly, a number of respondents (25 percent) have more than 20 portfolio companies. This may be as a result of multiple growth capital transactions for minority investments.
What is the average period of holding an investment?

A v era ge period of holdin g a n in v es t
41 %
24% 1 8% 1 2% 6%
2 Year
3 Year
4 Year
5 Year
No exits to date
Private equity in the region seems to have a shorter horizon of two to four years, whereas firms outside the region typically have a horizon of three to five years. However, the current state of the market is expected to involuntarily extend such a horizon by one to two years.
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Credit crunch impact How did the economic turmoil affect your portfolio companies?
Effects on portfolio due to econ om ic turm oil
Decrease sales and pro fits Delay/cancel IP O plans Delay/cancel new expansio ns o r investments Decrease bank debt Delay/cancel bo nd o r sukuk issuance Decrease margins No effect Decrease in exit multiples sure to co mmo dity prices and currency vo latility Increased co st o f funding Decrease in gro wth
6% 6% 6% 6% 11% 11% 11% 22% 22% 33%
39%
The majority of respondents agree that the current economic conditions have adversely affected sales, margins and ultimately profits. This perception is presumably due to a decrease in consumer spending. Interestingly, only 6 percent of respondents believe the crisis has resulted in increased finance costs. From an operational point of view, the focus, in light of the global financial meltdown appears to be a redirection of excess cash away from expansionary plans towards paying down bank debt and decreasing credit exposure. The slump in stock market prices is one of the main reasons why 33 percent believe that the economic turmoil has resulted in delays or even cancellations of IPO plans. Interestingly, 11 percent believed the current turmoil has had no effect on companies in their portfolio, which may be due to the dynamics within the region generally (i.e. high growth and low leverage). Overall, the surveyed firms commented that they expect a slowdown in growth and that it has become more important to manage liquidity. We are working closely with our portfolio companies in determining the key issues impacting them in the current environment. If internally we do not have the resources to address the issues or concerns, we then use our industry contacts to assist the companies with their strategic and operational issues.
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2. Next year
Participants were asked to express their opinion about the future of private equity in the MENA region. Broadly, some participants believe consolidation is likely and that fund raisings will be more challenging in 2009. It is therefore not surprising that 31 percent of respondents are not planning to launch a fund at all during 2009.
How many funds will you launch next year?

Fun ds to be laun ched in 2009
56%
31 %
1 3%
0% No ne 1 2 3
0% M o re than 3
Nevertheless, some of the respondents see an opportunity in the current environment and expect large players with established track records to bounce back strongly since historically the best private equity returns have been from investments made during an economic downturn. Strong funds will survive while those without track records will disappear. After a period of little activity and after the market settles, there will be decreasing emphasis on minority stakes and more focus on majority control transactions.
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Do you expect the number of deals to increase or decrease in 2009?
Ex pecta tion for 2009
Increase 45%
Decrease 44%
Stay the sam 1% 1
There is an almost even split between those respondents who expect an increase and those who expect a decrease in the number of deals in 2009, reflecting the level of debate in the industry in general. Changes in market multiples and general market slowdown may affect short term carrying values for investments; they do not affect the long term intrinsic value of the business, provided the investment was a good business to begin with and that it has no short term financing pressure.
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What will be your target IRR in 2009?
Ta rget IR R by res pon den ts in 2009

1 2% 24%
40%
24%
>40% 30-39% 20-29% 1 9% 5-1
Only a small proportion of respondents are targeting an IRR of less than 20 percent, reflecting their confidence in the market, despite the turbulent times. The average target IRR in the industry is generally 20 percent or more and the most common response was an IRR target of between 20-29 percent. Interestingly, when asked if the IRR expectation changed since the credit crunch took place, 56 percent said Yes and 33 percent answered No (11 percent did not respond). This may be indicative of the general opinion that 2009 investments will be IRR accretive due to depressed asset values in the current market.
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What type of exits do you plan in 2009?
Ty pes of ex its plan n ed in 2009

Trade sale (to o ther co mpanies)
61%
Financial sale (to o ther funds)
28%
P rivate placement
22%
No ne
22%
IP Os
17%
Generally it is felt that exiting in current times will not provide targeted returns on investments. Despite IPOs traditionally being one of the most preferred exit options for the industry, it is the least favoured exit plan for 2009. IPO exits will be delayed and holding period of investments will be extended until market conditions improve
Overall and compared to last year, how optimistic or pessimistic about the future of private equity in MENA are you?
Ex pectation about private eq uity in dustry in M ENA
Very o ptimistic
1 7%
M o derate 50%
Optimistic 33%
It is interesting to note that no respondents answered Pessimistic or Very Pessimistic, despite these being valid response options. One comment stated that the drop in valuations will provide opportunity for investment to private equity players.
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3. Types of funds
It is broadly accepted that the immediate future - 2009 especially - will be difficult in terms of fund raising. One respondent commented that Buyout and significant minority transactions are available at attractive valuations and more importantly at buyer friendly terms.
What type of funds do you manage and what type of fund will you launch?
Ty pe of fun ds m a n a ged
Distressed (Special situatio n funds) 7% Real Estate 7% B uyo ut 40% Infrastructure 7% P ublic equity P re- IP O 3% 3%
Ty pe of fun ds plan n ed to be laun ched in 2009
Distressed 7% M ezzanine 7%
Real Estate 7% B uyo ut 44% P re- IP O 7%
M ezzanine 1 3%
Infrastructure 1 4%
Venture Capital 20%
Respondents continue to favour buyout funds as they may be well placed to invest opportunistically in 2009. Infrastructure funds are expected to be less prominent in 2009. Fund Managers were also asked how they want to market their funds and most replied with a focus on regional institutions and HNWI but a respectable proportion is also considering international institutions
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4. Region
A number of new players entered the MENA private equity landscape over the last couple of years. Many of these have no focus or strategy regarding a geography or sector. The coming years will probably see some change in these players and their ability to compete with the more established and focused players.
Which regions do you invest in and where will you be investing in 2009?
R egion s i n v es ted a n d pla n s to i n v es t i n 2009
GCC
78% 89% 89%
No rth A frica
67%
83%
Levant
17%
83%
So uth-East A sia
11% 6% 6%
17%
Euro pe
US
6%
11%
Rest o f A sia
11% 17%
Other
17%
Invested until 2008
P lans to invest in 2009
GCC remains the most attractive region. North Africa and Levant regions are expected to become less popular in 2009. Surprisingly, the South-East Asia region was not perceived to have an increased level of focus in 2009, despite large fundraising for MENASA funds in 2008. However, these major fund raisings related to only two (large) funds. Consequently, it seems that the case for MENASA is yet to be validated.
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5. Sectors
The majority of responses reflect a general decrease in investment in most sectors, presumably related to the effects of the credit crunch. Notable decreases in investment focus relate to the Energy, Telecommunications, Manufacturing, Construction and Retailing sectors, all of which are prone to being adversely affected in a downturn. Defensive anti-recessionary sectors are expected to be a focus in 2009, evidenced by the increase in the Healthcare and Education sectors.
In what sectors have you and will you be investing in 2009?
Respondents by industry focus

% of respondents with investments already 56% 56% 50% 50% 44% 39% 39% 33% 28% 28% 28% 22% 22% 22% 22% 17% 11% % of respondents planning to invest in 2009 44% 33% 33% 22% 22% 33% 22% 44% 28% 22% 6% 33% 28% 22% 0% 11% 11%
Industry Energy/utility Telecommunications and allied services Manufacturing Construction Retailing Communications/Media Banking/Financial Healthcare Technology software, hardware and services Transportation Legal/Real Estate investments/management Distribution/wholesaling Education Consumer services Automotive Insurance Professional services/consulting
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6. Reporting & Disclosure

How frequently do you inform your LPs about the funds performance and what means do you use to inform your LPs about the funds performance?
67%
67%
56%
28% 22% 17% 11% 6%
M o nthly
Quarterly
Semi-A nnually
A nnually
General meeting
Email
Letters
Thro ugh the website
The majority of respondents report quarterly and the most used communication channels were letters or emails. When asked if managers are willing to disclose a greater level of information going forward about funds and portfolio companies, 62 percent said no.
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8. GVCA - Gulf Venture Capital Association

8.1 8.2 8.3 GVCA Overview Board Members Members Directory
8.1 GVCA Overview

GVCA is a not for profit trade and industry association for Venture Capital (VC) and Private Equity (PE) based in the Kingdom of Bahrain to serve the whole region. Its prime role is to promote a risk-taking investment culture, develop skills, facilitate networking, and provide relevant information and statistics on VC/PE industry. Mission: GVCAs mission is to serve the VC/PE industry and foster its growth in the Region. Goals: 1. Promote and advocate VC/PE as a vital industry, contributing to economic growth. 2. Facilitate communication and networking among stakeholders. 3. Gather and disseminate industry statistics and information. 4. Develop and promote professional and ethical codes of conduct. 5. Foster professional development and learning environment. The Associations activities cover several aspects of the VC/PE industry such as trends and strategies, legal/ fiscal policies and regulations, investment models, management of fund raising and structures, technology evaluation and valuation, contracts and control rights, information/studies, early-stage funding, buyout, IPO, and corporate venture capital, among others. Membership: Members of the GVCA include VC/PE companies, financial institutions, corporations, consultants, and business development organizations, among others. Committees: The Association has established the following four committees to bring together members who represent their areas of expertise to work on GVCA activities and actions: 1. Membership Committee 2. Learning & HR Committee 3. Regulation Committee 4. Information & Statistics Committee
Website: http://www.gulfvca.org
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8.2 GVCA Board of Directors

Mr. Abdullah Al- Subyani President, GVCA Saudi Aramco, KSA Oussama Tabbara Vice President, GVCA Nexia International, KSA
Imad Ghandour Information & Statistics Chairman, GVCA Gulf Capital, UAE
Mr. Mansour Al Khuzam Membership Committee Chairman, GVCA Khazaen Venture, Kuwait
Hussein Rifai Regulation Committee Chairman, GVCA
Marwan Tabbara Treasurer, GVCA Stratum, Bahrain
Ihsan Jawad Board Member, GVCA Zawya.com, UAE Wissam Kojok Board Member, GVCA Silk Route, UAE Murad Mahmoud Board Member, GVCA Dlala Holding, Qatar
Ahmad Al Sari Board Member, GVCA Malaz Group, KSA Khaled Fouad Board Member, GVCA
Website: http://www.gulfvca.org
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8.3 GVCA Members Directory

ABC Bahrain David Clarke david.clarke@arabbanking.com Abraaj Capital Frederic Sicre frederic.sicre@abraaj.com Abu Dhabi Investment Company Serkan S. Kizil s.kizil@adic.ae Al-khonji Group of Companies Qais Al Khonji khonji1@omantel.net.om Al-Tawfeek Company For Investment Funds Ltd. Dhafer S. Al-Qahtani d.alqahtni@altawfeek.com Al-Tuwairqi Sajjad Haider Syed.sajjad@altuwairqi.com.sa American University in Dubai Rod Monger Rmonger@aud.edu Ana Balat Capital Management Limited Dr Yvonne C van Dongen +90 212 2926640 Arcapita Nael Mustafa nmustafa@arcapita.com ASA Consultants Adel Saudi aasaudi@hotmail.com Banatolia - Business Angel Network Anatolia Alp Aslam Alp@banatolia.org Banawi Industrial Group Waleed Al Banawi waleed.albanawi@banawigroup.com Banker Middle East Robin Amlot robin@cpidubai.com Barclays Lars Lind lars.lind1@barclays.com Bayan Investment Co. Bassel Abu Ali basel@bayaninvest.com BEST Funds Douglas info@bestfunds.ca Boston BioCapital, LLC Hoda Abou Jamra hoda@bostonbiocapital.com Bridge Technologies Ehab Osman Khalil Ehab@bridgetechnologies.com Bushnak Group Adil Bushnak info@bushnak.com Carnegie Global Ventures Lisa LaBonte lisa@carnegieventures.com
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Catalyst PE Ennis Rimawi ennisr@catalystpe.com Chicago Capital Group, LLC Waseem Anwar wanwer@ChicagoCapitalGroup.com Citadel Capital Ghada Hammouda ghammouda@citadelcapital.com CORECAP Jawaher Menassa jjm@corecapllc.com Dadabhai Group Qutub Dadabhai qutub@dadabhai.com DevCorp International James Green Berg jgreenberg@devcorpint.com Dinar Investment House Ltd. Azhar AbdAziz info@gdinar.com Dlala Brokerage & Investment Holding (Q.S.C.) Murad M. Mahmoud mmahmoud@dlalaholding.com Draper Investment Company Don Draper info@draperco.com Dubai Investments G Bala Subramanyan gbala@dubaiinvestments.com Ernst and Young Omar Kamal omar.kamal@ey.com.bh
East West Holdings Pvt. Ltd. Brian Walsh bw@ewwh.com Elshawi Electronic Essam Shawi e.shawi@uttc.com Emc2 Management Consulting Corporate Finance, Mergers & Acquisitions Matthias Eckert matthias@emc2invest.com GA Consult George Azar gaconsult@terra.net.lb Glacier Technologies, Inc. Mansur Abahusayn mabahusayn@glaciertec.com Global Investment House Shailesh Dash, CFA shaileshdash@global.com.kw Gulf Capital Imad Ghandour ighandour@gulfcapital.com Gulf Investors Group Limited Andrew de Candole andrew@gulfinvestors.com Gulf Technology Partners Ahmad Bayaa ahmadbayaa@gulftechnologypartners.com Hawkamah Nick Nadal nick.nadal@hawkamah.org Hormud Telecom Ahmed Galool galool@hotmail.com
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Integration Capital & Trade, Inc. Aran Brosnan abrosnan@integrationcap.com Investcorp Bank Ramzi Abdel Jaber rabdeljaber@investcorp.com Investia Venture Capital Samir Elaily haidy@investiaco.com ISI Emerging Markets - Euromoney II Ahmet Kayhan akayhan@securities.com Islamic Corporation for the Development of Private Sector Dr Ali Soliman aasoliman@isdb.org Istithmar World Ventures LLC Dr. Pablo Fetter Pablo.Fetter@istithmarworld.com Ithmar Capital Faisal Belhoul Tel: +971 4-282-5555 Fax: +971 4-283-1155 Jawad Habib-Bahrain Jose Martin jose@bdojawadhabib.com Jina Partners Swatick swatick@jinapartners.com Kanoo Bader Kanoo bader@kanoosa.com
Kanz for Consultation and Training Jamal H. Almutair mutairjh@kanz.com.sa Khazaen Venture Capital Mansour AlKhuzam mansour@khazaen.com King Abdulaziz University Adnan Soufi asoufi@kau.edu.sa KPMG Vikas Papriwal VikasPapriwal@kpmg.com Liquid Crystal Gerard Rego gerard@liqwidcrystal.com MSharie LLC Abdul Aziz Serkal +971 4 3379333 Malaz Group Abdulaziz Jazzar ajazzar@malazgroup.com Malaz Group Ahmad M. Al-Sari aalsari@malazgroup.com Malaz Group Dr Fahad Al Mubarak falmubarak@yahoo.com Millennium Private Equity Izzet Guney izzet.guney@mfcorp.ae MISR International Mohamed Mahmoud Hussein mhussin@yahoo.com
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Motasem Khashoggi Law Firm Hani Al-Jahdali hani@khashoggilaw.com National Bonds Corporation PJSC Nasser H. Al-Shaikh nasser@alshaikh.ae National Industries Group Holding Hetaf Khajah investmgr@nig.com.kw NBK Capital Samir Assaad +971 4 3652806 Nexia Oussama Tabbara oussama@tabbara.com.sa Noor Financial Investment Company Ahmed Farooq farooq@noorinvestment.com NVCI GmbH George Otterbacher +49 711 22254123 Oxford Capital Partners Ltd. Edward Mott emott@oxcp.com Qatar Science & Technology Park Paul Field pfield@qstp.org.qa RNB Group of Companies Vinod Kumar vinod@rnbgroup.net SAGIA Chams-Eddine Asli Casli@sagia.gov.sa
Saudi Arabian Airlines Hani Al Jahdali +966 2 6225610 Saudi Aramco Abdulla Al Subyani abdullah.subyani@aramco.com Saudi Economic Development Co. Dr. Adnan Soufi +966 2 6066556 SHUAA Partners Jamil Brair jbrair@shuaapartners.com Silk Route Capital Group Wissam Kojok wissam@silkroutegroup.com Stratum Marwan Tabbara tabbara@stratumwll.com Suchefort & Partner D.Emanuel info@Suchefort-Partner.de Swicorp Capital Haifa Mahsini hmahsni@swicrop.com Swicorp Capital Jean-Guillaume Habay jhabay@swicorp.com Swicorp Capital Rudolph Waels rwaels@swicorp.com TAIB Bank Salah Saleh Sultan sultan@taib.com
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The Ascent Group Peggy Farley peggy.farley@ascentcompanies.com The National Investor Yehya Jalil yjalil@tni.ae TVM Capital GmbH Dr. Helmut Schuehsler schuehsler@tvm-capital.de Wafik Abdel-Fattah CPA Wafik Abdel Fattah wafik@link.net Zawya Ihsan Jawad ihsan@zawya.com
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9. Directory of private equity firms in MENA
Abraaj Capital Abu Dhabi Investment Company Abu Dhabi Investment House (ADIH) Al Arabi Investment Group Al Imtiaz Investment Company Al Futtaim Capital Agility Al Mal Capital Al Tawfeek Company for Investment Funds Amwal Al Khaleej Arab Business Angels Network Arcapita Atlas Investment Group BMG Financial Advisors Byblos Bank Capital Invest Capital Management House Capital Trust Capivest Investment Bank Catalyst Investment Management Company Citadel Capital Concord International Investments CORECAP Corporate Finance House Daman Securities Deutsche Bank Delta Partners Dubai International Capital EFG-Hermes Private Equity Emerging Markets Partnership (Bahrain) Equity I Evolvence Capital Foursan Group Global Investment House Gulf Capital Gulf Finance House Hamilton Lane HBG Holdings HSBC Private Equity (Middle East) Injaz Mena Investments Injazat Capital Instrata Capital BSC (c)
Intel Capital Investcorp Bank B.S.C. Istithmar World Ventures LLC Ithmaar Bank Ithmar Capital Keystone Equity Partners (Growth Gate Capital) KGL Investment Kipco Asset Management Company (KAMCO) Kuwait Finance and Investment Company Kuwait Finance House (Bahrain) Lebanon Invest Asset management SAL Levant Capital Malaz Group Markaz MENA Advisors Limited MerchantBridge and Co Middle East Capital Group Millennium Private Equity Minah Partners MSharie National Commercial Bank National Technology Enterprises Company NBK Capital New Enterprise East Investments Noor Financial Investment Company Qatar Capital Partners LLC Qinvest Rasmala Ryada Capital Sabre Abraaj Management Company Saffar Capital Sana Capital SHUAA Partners Societe Tunisienne dInvestissement a Capital Risque (Tuninvest) Swicorp The Carlyle Group The GCC Energy Fund Managers Limited The National Investor (TNI) Tuareg Capital Unicorn Investment Bank Venture Capital Bank
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Abraaj Capital Dubai International Financial Centre Gate Village 8, 3rd Floor PO Box 504905 Dubai, United Arab Emirates Tel: +971 4 506 4400 Fax: +971 4 506 4600 Abu Dhabi Investment Company National Bank of Abu Dhabi Building Khalidiya, Tariq Bin Ziad Street P.O. Box 46309 Abu Dhabi, United Arab Emirates Tel: +971 (0) 2 665 8100 Fax: +971 (0) 2 665 0575 Abu Dhabi Investment House PO Box 106699 Abu Dhabi, United Arab Emirates Tel: +971 2-681-1233 Fax: +971 2-681-1844 Al Arabi Investment Group PO box 143156 Amman 11814, Jordan Tel: + 9626 55 222 39 Fax: + 962 655 190 64 Al Futtaim Capital P.O. Box 152 Festival Tower, Level 28, Dubai Festival City Dubai, United Arab Emirates Tel: +971 4-706-2222 Fax: +971 4-706-2110 Al Mal Capital P.O. Box 119930 Emaar Square, Building Number 4, 3rd Floor, Office 302 Dubai, United Arab Emirates Tel: +971 4-360-1111 Fax: +971 4-360-1122 E-mail: info@alamalcapital.com
Al Tawfeek Company for Investment Funds PO Box 430, Jeddah 21411,Saudi Arabia Tel: +966 2-617-1003 Fax: +966 2-674-4255 Agility Roundabout 6, Jebel Ali Free Zone Dubai, United Arab Emirates Tel:+971 4-332-3331 Fax:+971 4-331-0015 Amwal Al Khaleej PO Box 59115, Riyadh, KSA 11525 Tel: + 9661 216 4666 Fax: + 9661 216 4777 Arab Business Angels Network DIFC Building 2, Level 4, Office 205 PO Box 72888 Dubai, UAE www.aban.ae Arcapita P.O. Box 1406 Building 114 ,8th Floor ,Al Khalifa Street Manama, Bahrain Tel:+973 17-218333 Fax:+973 17-217555 Atlas Investment Group PO Box 143156, Amman 11814, Jordan Tel: +962 6-552-2239 Fax: +962 6-5519064 BMG Financial Advisors PO Box 52972, 5th Floor, Al Mukmal Plaza Palestine Rd, Jeddah 21573, Saudi Arabia Tel: +966 2-668-1777 Fax: +966 2-668-1888
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Byblos Bank Byblos Bank Tower Elias Sarkis Avenue, Achrafieh PO Box 11-5605, Beirut, Lebanon Tel: +961 1-335200 Fax: +961 1-339436 Capital Invest P.O. Box 5571 Block 305, Zamil Tower ,6th Floor ,Al Khalifa Avenue Manama, Bahrain Tel:+973 17-502222 Fax:+973 17-502211 Email: info@capivest.com Capital Management House P.O. Box 1001 West Tower, World Trade Center, 8th Floor Manama ,Bahrain Tel:+973 17-510000 Fax:+973 17-510051 Email:info@capitalmh.com Capital Trust P.O. Box 11-439 Starco Center,8th Floor, Block C Omar Daouk Street,Mina Al Hosn Beirut, Lebanon Tel:+961 1-368968 Fax:+961 1-368324 Email:ctsa@cyberia.net.lb Capivest Investment Bank P.O. Box 5571 Block 305, Zamil Tower,6th Floor ,Al Khalifa Avenue Manama ,Bahrain Tel:+973 17-502222 Fax:+973 17-502211 info@capivest.com
Catalyst Investment Management Company P.O. Box 1350 Hajb Al Tijari Building, 1st Floor, Al Mahara Street Amman 11821, Jordan Tel: +962 6-581-3411 Fax: +962 6-581-3412 Email: info@catalystpe.com Citadel Capital Nile Plaza, 1089 Corniche El-Nil Cairo, Egypt Tel: +202 27914440 Fax: +202 2791 4448 info@citadelcapital.com Concord International Investments 9 Hood Al Laban Street, Garden City Cairo 11451, Egypt Tel: +20 2-792-3861 Fax: +20 2-792-3864 CORECAP PO Box 66916 Dubai, UAE Tel: +971 4 391 0627 Fax: +971 4 390 4361 www.corecapllc.com Corporate Finance House 9th Floor, Gefinor Center Block B Clemenceau Street, PO Box 113-7008 Beirut, Lebanon Tel: +961 1-747606 Fax: +961 1-747247 Daman Securities P O Box 9436, Dubai, United Arab Emirates Tel: +971 4-332-4140 Fax: +971 4-332-4240
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Deutsche Bank Dubai International Financial Center PO Box 504902 Dubai, United Arab Emirates. Tel: +971 4-361-1700 Delta Partners P.O. Box 502428 Al Shatha Tower 1, Offices 8 and 9 12th floor, Dubai Internet City Dubai, United Arab Emirates Tel: +971 4-369-2999 Fax: +971 4-368-8408 Dubai International Capital PO Box 72888, The Gate, East Wing 13th Floor Dubai, United Arab Emirates Tel: +971 4-362-1888 Fax: +971 4-362-0888 EFG-Hermes Private Equity 58 Tahrir Street, Dokki, Giza 12311, Egypt Tel: +20 2-338-3626 Fax: +20 2-338-3616 Emerging Markets Partnership (Bahrain) PO Box 11385, Manama, Bahrain Tel: +973 17-549333 Fax: +973 17-537660 Equity I P.O. Box 213652 Al Attar Tower, Office Number 1702, Sheikh Zayed Road Dubai ,United Arab Emirates Tel:+971 4-321-1196 Fax:+971 4-321-7796 Email:contact@equity-i.com
Evolvence Capital PO Box 31309, Dubai, United Arab Emirates Tel: +971 4-332-4033 Fax: +971 4-332-4013 Foursan Group PO Box 143154 Amman 11814, Jordan Tel: +962 6-562-4562 Fax: +962 6-562-4263 Global Investment House Al Mirkab, 2nd Floor, Souk Al Safat Bldg Abdullah Al-Mubarak Street, PO Box 28807 Safat 13149, Kuwait Tel: +965 240-0551 Fax: +965 240-0661 Gulf Capital National Bank of Fujeira Tower 15th FloorSalam Street P.O. Box 27522Abu Dhabi, UAE Tel +971 2 6942700 ; Fax +971 2 6942703 Gulf Finance House Al Salam Tower, PO Box 10006 Manama, Bahrain Tel: +973 17-538538 Fax: +973 17-540006 HBG Holdings Limited Level 27, Al Moosa Tower II, Sheikh Zayed Road Dubai, United Arab Emirates Tel: +971 (4) 331 4133 ; Fax: +971 (4) 331 4134 Email: info@hbgholdings.com HSBC Private Equity (Middle East) PO Box 4604, Dubai, United Arab Emirates. Tel: +971 4-507-7333 Fax: +971 4-353-4583
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Injaz Mena Investments Zayed 2nd Street, PO Box 107394 Abu Dhabi, United Arab Emirates Tel: +971 2-672-8400 Fax: +971 2-672-0011 Injazat Capital PO Box 506544 Dubai, United Arab Emirates Tel: +971 365 1500 Fax: +971 363 7324 Instrata Capital BSC (c) P.O. Box 26300, Manama, Kingdom of Bahrain Tel: +973 17388 188 Fax: +973 17388 177 Email: enquiries@instratacapital.com Intel Capital Building No. 5, Dubai Internet City PO Box 500032, Dubai, UAE Investcorp Bank B.S.C. PO Box 5340 Manama, Kingdom of Bahrain Tel: +973 17532000 Fax: +973 17530816 Istithmar World Ventures LLC Al Attar Business Tower, Level 35 PO Box 17000, Dubai, UAE Tel: +971 4 369 6507 Fax: +971 4 375 1875 www.istithmarworld.com Ithmaar Bank PO Box 2820, Addax Tower 10th floor Seef District Kingdom of Bahrain
Ithmar Capital PO Box 5527, Dubai, United Arab Emirates Tel: +971 4-282-5555 Fax: +971 4-283-1155 Keystone Equity Partners (Growth Gate Capital) World Trade Center, Level 22 Sheikh Zayed Road P.O. Box 36330 Dubai, United Arab Emirates Tel: +971 4-329-5537 Fax: +971 4-329-5538 Kipco Asset Management Company (KAMCO) PO Box 28873, Safat 13149 Kuwait Tel: +965 805885 Fax: +965 241-9611 KGL Investment P.O. Box 24565 KGL Building, Al Jahraa Street ,Shuwaikh Industrial Area, Kuwait Safat 13106, Kuwait Tel:+965 2224-6444 Fax: +965 2224-6424 Email:info@kglinvest.com Kuwait Finance and Investment Company P.O. Box 21521, Al Murqab - Altaf Complex Safat, Kuwait, 13037 KWT Tel: +965889000 Fax: +9652420174 Kuwait Finance House (Bahrain) PO Box 2066, Manama, Bahrain Tel: +973 17-221666 Fax: +973 17-221600
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Levant Capital Office 1301 Fairmont Building Sheikh Zayed Road Dubai,UAE Tel:+97143319788 Fax:+97143319789 Info@levantcapital.com Malaz Group PO Box 66633, Riyadh 11546, Saudi Arabia Tel: +966 1-460-1644 Fax: +966 1-460-0143 Markaz Kuwait Financial Centre Markaz Universal Tower, Ahmad Al-Jaber St, Sharq, Kuwait Tel: +965 2248000 Fax: +965 2425828 Postal Address: P.O. Box 23444 Safat 13095, State of Kuwait MerchantBridge and Co P.O. Box 212726 Dubai, United Arab Emirates Tel:+971 4-433-1813 Fax:+971 4-390-9928 Millennium Private Equity Dubai International Financial Center, The Gate East Wing 2nd floor, PO Box 121299, Dubai, UAE Tel: +971 4-363-4200 Fax: +971 4-362-0540
MSharie P.O. Box 28171 Enoc Building Number 1 3rd Floor,Oud Mehtha Road Dubai, United Arab Emirates Tel:+971 4-337-9333 Fax:+971 4-334-6547 Email:info@msharie.com National Commercial Bank PO Box 3555, Jeddah 21481, Saudi Arabia. Tel: +966 2-646-4999 Fax: +966 2-644-6468 National Technology Enterprises Company PO Box 2294, Safat 13023, Kuwait Tel: +965 240-6340 Fax: +965-240-5926 NBK Capital PO Box 4950, Safat 13050, Kuwait Tel: +965 224-6903 Fax: +965 224-6904 Noor Financial Investment Company Al-Kharafi Towers, 10th and 11th Floors Osama Bin Munqes St., Qibla P.O. Box 3311 Safat 13034 Kuwait Tel: +965 232-3333 Fax: +965 232-3330
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Qatar Capital Partners LLC P.O. Box 23109, Doha, Qatar Tel: +974 494 5474 Fax: +974 483 9982 Qinvest Sheikh Khaled Bin Hamad Al Thani Commercial Building Al Sadd Street,Qatar Financial Centre P.O. Box 26222 Doha, Qatar Tel:+974 424-6666 Fax:+974 444-8446 Email:info@qinvest.com Rasmala Dubai International Financial Centre The Gate Village, Building 10, Level 1 P.O. Box 31145, Dubai, United Arab Emirates Tel: +971 4 363 5600 Fax: +971 4 363 5635 Ryada Capital PO Box 29086, Safat 13151, Kuwait Tel: +965 491-0191 Fax: +965 299-7882 Sabre Abraaj Management Company Level 7, Emirates Towers Offices Post Box 504905 Dubai, United Arab Emirates Tel.: +9714 319 1500 Fax: +9714 319 1600 Saffar Capital P.O. Box 211495 Dubai, United Arab Emirates Tel:+971 4-396-6336 Fax:+971 4-397-7090
Sana Capital Gate Village Building Number 5 5th Floor, Dubai International Financial Center P.O. Box 506711 Dubai, United Arab Emirates Tel: +971 4-303-2600 Fax: +971 4-323-0087 Societe Tunisienne dInvestissement a Capital Risque (Tuninvest) Immeuble Iris, Les Berges de Lac 1053 Tunis, Tunisia Tel: +216 71-862311 Fax: +216 71-862805 Swicorp Kingdom Tower, 49th Floor King Fahed Road P.O. Box 2076 Riyadh 11451Saudi Arabia Tel:+966 1-211-0737 Fax:+966 1-211-0733 Email:info@swicorp.com SHUAA Partners Emirates Tower Level 28, Sheikh Zayed Road P.O.Box 31045, Dubai, United Arab Emirates Tel: +971 4-330-3600 Fax: +971 4-330-3550 The Carlyle Group Dubai International Financial Centre Precinct Building 3, P.O. Box 506564 Dubai, United Arab Emirates Tel: +971 4 427 5600 Fax: +971 4 427 5610
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The National Investor TNI Tower, Zayed Street, Khalidiya PO Box 47435 Abu Dhabi, United Arab Emirates Tel: +971 2-619-2300 Fax: +971 2-619-2400 Tuareg Capital Bahrain (Mailing): Al Matrook Building, Diplomatic Area PO Box 11544 Manama, Bahrain Tel: +973 1753 7277 Unicorn Investment Bank PO Box 31700 Manama, Bahrain Tel: +973 17-566000 Fax: +973 17-566001 Venture Capital Bank PO Box 11755 Manama, Bahrain Tel: +973 17-514451 Fax: +973 17-514441
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10. Sponsor's profiles
Zawya
Our Solutions for Private Equity Professionals Current, timely, and accurate information keeps private equity practitioners continuously informed on new developments in their target industry and the wider macroeconomic environment. Zawya members locate hard-to-find data on specific companies and transactions to help them take the inside track on potential investment opportunities, source deals and possible exit strategies. They connect to the knowledge and experience of fellow financial experts through Zawyas own private Network of premium members. Members gain sharp insight into how their private equity fund performance compare against similar funds and identify potential minority interest opportunities by examining the latest transactions, rates, sizes, IRRs, and trends to determine how they are performing, and compare the values of entry and exit deals. They also gauge investor appetite by reviewing the areas of funds being raised, fund closing sizes, sectors and countries of investment. Zawya members also find out where the bigger players are investing and get the whole picture on the trends and behavior of the region's Sovereign Wealth Funds by reviewing portfolio details, in its dedicated section focusing on SWF activity. In Zawyas Corporate Monitor service, members search and build company lists by sector, market, size, and ownership, and compare in-depth profiles of over 12,500 public and private companies in the region. They are able to understand who the major shareholders are and review profiles to find out what affiliates and subsidiaries are held, as well as what investments each company holds. The Corporate Monitor database allows members to make meaningful comparisons on target company value with their publicly listed equivalent. Similarly, third-party research provided in the Research Monitor enables them to gain a better understanding of the overall state of the target companys market, sector, and macro-economic context. They also keep ahead by analyzing historical IPOs, identifying trends, and spotting opportunities through close monitoring and analysis of activities and pipeline deals for the IPO asset class. As IPOs are a popular exit strategy for Private Equity Managers in the region, members strengthen their understanding of industry and market appetite by keeping track of what lies ahead in Corporate Arabia's quest to go public. In addition, the Zawya Dow Jones (ZDJ) Live Newswire keeps members ahead of fast-moving market developments with a dedicated team of on-the-ground journalists stationed throughout the region. With breaking news and latest earnings of the regions top firms, members are able to predict potential market movements so they can stay ahead of changes and make informed investment decisions. Private equity professionals identify new opportunities and achieve a refined understanding with unique, in-depth news dedicated to the regions PE industry. Connect with Zawya members: The Zawya Network (ZN) forges valuable relationships between members and enables them to share in the knowledge experience of the investment community. An exclusive network of business and investment professionals, the ZN allows members to expand relationships with experienced peers and engage in a variety of discussions to share information on key business and market issues that present new investment opportunities. Members can also connect with Zawyas own experienced analysts, who provide assistance with any questions on the regional PE business and investment environment.
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Istithmar World
Established in 2003, Istithmar World is an investment arm of Dubai World. In the five years since its inception, Istithmar World has built a broad portfolio of successful investments in markets ranging from North America and Europe to Asia and the Middle East, as well as across a variety of sectors, including consumer, industrial and financial services. Based in Dubai and with offices in Shanghai and New York, the firm invests through its three separately-managed divisions: Istithmar World Capital, Istithmar World Aviation and Istithmar World Ventures. Istithmar World Capital is a private equity and alternative investment house headquartered in Dubai, United Arab Emirates, with an office in Shanghai, China. Istithmar World Aviation invests in fast-growing sectors of the aviation and aerospace industry, including airlines, manufacturing, engineering and financing. Istithmar World Ventures is a venture capital platform that benefits promising start-ups and greenfield ventures by providing them with the necessary financial and managerial resources.
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Hawkamah
The Hawkamah Institute for Corporate Governance (www.hawkamah.org) The Hawkamah Institute for Corporate Governance (Hawkamah) is an international association of corporate governance practitioners, regulators, and institutions advancing home grown but globally integrated corporate governance best practices in the region. Hawkamahs mission is to promote corporate sector reform and good governance, assist the countries of the region in developing and implementing sustainable corporate governance strategies adapted to national requirements and objectives. Regional cooperation will facilitate exchange and allow countries to learn from successful experiences, combine efforts, move towards harmonization of corporate governance frameworks, and build on synergies resulting from national actions and initiatives. Hawkamah is currently shaping the development of corporate governance in the Middle East, North Africa, and Central Asia. By promoting its core values of transparency, accountability, fairness, disclosure, and responsibility, Hawkamah works on policy and practical aspects of corporate governance reform in the region.
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Abraaj Capital
Abraaj Capital is one of the largest private equity groups in the Middle East, North Africa and South Asia (MENASA). Since inception in 2002, it has raised about US$ 7 billion for its funds, and made more than 35 investments across eleven countries. Based in Dubai, Abraaj operates offices in five countries, including Saudi Arabia, Egypt and Turkey. More than 150 world-class professionals work at Abraaj from 27 different nationalities. Abraajs holdings include some of the regions most prominent companies, such as Air Arabia, the regions largest low-cost carrier; Acibadem Healthcare Group, Turkeys biggest privately owned operator of premium hospitals; and Al Borg Laboratory, the Middle Easts biggest medical laboratory-testing company. Abraaj has won several international awards, and is a four-time winner of PEIs Middle Eastern Private Equity Firm of the Year. Abraaj operates five funds, and has distributed about US$ 3 billion to investors from 20 exits, where it generated superior returns from value added. Abraaj Capital Ltd. is licensed by the Dubai Financial Services Authority, which operates according to international regulatory standards.
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Abu Dhabi Investment Company

Abu Dhabi Investment Company (ADIC), the first investment company in the United Arab Emirates, is one of the leading financial services firms in the region. Established by Emiri Decree on February 24, 1977, and owned by Abu Dhabi Investment Council, ADIC has delivered excellence in treasury and credit services, loan syndication, equity and debt underwriting, financial advisory, asset management and brokerage across a range of asset classes. As a result, the company has earned a reputation for professionalism, integrity, innovation, and market knowledge. Pursuing a focused approach, ADIC today leverages its investment expertise across four strategic areas: Asset Management, Private Equity, Real Estate, and Infrastructure. In this way, the organization is able to offer targeted products and services to meet specific client requirements in markets across the globe, all while delivering superior risk-adjusted returns. With extensive knowledge of the Middle East and North Africa investment environment, unrivalled access to primary information on regional companies, both large and small, an understanding of the micro and macroeconomic environment and record of accomplishment across asset classes, ADIC is an ideal investment partner for institutions and high net worth individuals based in the region and beyond.
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Citadel Capital
Cairo-based Citadel Capital is the leading private equity firm in the emerging markets of the Middle East and North Africa (MENA). Since it began operations, the firm has grown rapidly, having raised 14 Opportunity Specific Funds (OSFs) that control Platform Companies in 12 industries including cement, retail, mining, agribusiness, glass and the complete oil and gas value chain. Current Platform Companies involve more than US$ 8.3 billion of investments, and since its inception in 2004, the firm has returned cash to its co-investors totaling more than US$ 2.2 billion.
Although Citadel Capital is exclusively focused on private equity investing, the firms uniquely flexible approach to deal making allows it to pursue a wide range of investments that fall into four broad categories: consolidations and industry roll-ups, buyouts, greenfield investments and distressed deals and turnarounds. The firm is a control investor and generally builds investment platforms that are industry-specific, benefit from scale and have regional expansion potential to maximize growth and generate superior revenue.
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Global Capital Management

Global Capital Management Ltd. (GCML), a 100% subsidiary of Global, manages over USD 3.0 billion of Private Equity funds. GCML has one of the largest private equity teams in the MENA region with over 41 well qualified professionals comprising of 11 nationalities; providing local perspective for deals in all target regions. The team has a cumulative work experience of over 300 years ranging from private equity, investment banking, transaction advisory, venture capital, financial research, strategy consulting, credit rating, and audit. The team has diversified sectoral experience spanning through healthcare, education, real estate, shipping, petrochemicals, financial services and logistics etc. The private equity team is based out of Kuwait, Saudi Arabia, and Turkey. The team has invested and committed about USD1.8 billion and has successfully consummated 46 transactions across 11 sectors in MENA, Turkey, South Asia & China during 3 years. Its core competency lies in developing, investing, and successfully exiting private equity investments in the MENA with special focus on the GCC member countries, Turkey, India, and China. Currently, the Private Equity team manages more than USD 3.0 billion through 5 private equity funds of which 4 are unlisted and 1 is listed. The funds under management are namely, Global Private Equity Fund, Global Opportunistic Fund, Global Opportunistic Fund II, Global Buyout Fund L.P. and Global MENA Financial Assets Limited. Recently, the team launched Global MENA Financial Assets Limited (GMFA), a USD 500 million, Gurnsey incorporated, listed on the London Stock Exchange (main market) close-ended company. GMFA is the first permanent capital vehicle from the MENA region listed on the London (main market) that invests in financial services assets across the MENA region. The team has also been very active in pursuing exits for its funds. It has collectively returned more than USD 210 million to investors with an IRR of around 62% as of the end of June 2008.
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Gulf Capital
Gulf Capital is a leading regional investment company, focused on the GCC and MENA Region. Incorporated in early 2006 as a Private Joint Stock Company (Pvt. JSC) in Abu Dhabi, Gulf Capital has raised AED 1,225 Billion (US$ 330 Million) from 300 of the most prominent businessmen, institutions and families in the GCC. Gulf Capital seeks to acquire sizeable or controlling stakes in profitable and rapidly growing companies with high quality management, particularly those that can retain a sustainable competitive advantage. The group seeks to invest in a select number of growing industries, notably those that are undergoing consolidation. Gulf Capital is rapidly emerging as a leader in the Middle East private equity industry, with a mission to enhance shareholder value through partnering with portfolio companies to achieve exceptional growth.
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Malaz Capital
Malaz Capital is a Riyadh-based Asset Management company that invests in all stages of development of knowledge-based private companies in the Middle Eastern and North African region as well as strategic international locations. As a private equity and venture capital investor in the knowledge sector Malaz Capital leverages the vast sector experience of its founders and managing directors: Dr. Abdulaziz Abdulatif Jazzar Mr. Ahmad Mohammad Al-Sari Mr. Loay Hisham Nazer The founders bring more than eighty years of relevant sector experience and occupy leadership positions in the ICT, insurance, finance and health sectors in Saudi Arabia. They enjoy a vast network of business contacts in Saudi Arabia and all over the world and have influenced economic policies concerning the knowledge sector in Saudi Arabia. Malaz Capital is leading the way in developing venture capital in the knowledge sector in Saudi Arabia at a time of accelerated development and increasing commitment by the government to move towards a competitive knowledge-based economy. Malaz Capital launched ICT Ventures, a SR250million venture capital fund specializing in information and communication companies in 2008 and plans to launch other knowledge-based Private Equity/Venture Capital funds over the coming two years. It aims to have SR 1.5 billion under management by the year 2011. Malaz Capital and its founders highly appreciate their responsibility in contributing to development of the knowledge economy of Saudi Arabia and the region and will fulfill their part in developing the vital venture capital and private equity industry.
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Shuaa Partners
SHUAA Partners is the private equity arm of SHUAA Capital psc, a leading investment banking institution in the Middle East that is publicly listed in Dubai Based in Dubai, SHUAA Partners has a world-class team of investment professionals with a proven track record and a deep understanding of the Middle East. Shuaa Partners currently has more than US$ 1 billion million of assets under management:
In September 2005, SHUAA Partners launched its first fund, SHUAA Partners Fund I, L.P. (SPFI), with commitments of US$200 million. SPFI is an opportunistic fund whose objective is to achieve capital appreciation through select direct equity and equity related investment primarily in the GCC In December 2007, SHUAA Partners closed its second private equity fund, Frontier Opportunities Fund I, L.P. (FOFI), with commitments of US$ 100 million. FOFI is an opportunistic fund whose objective is to achieve capital appreciation through select direct equity and equity related investment primarily in Syria, Jordan and Lebanon In June 2008, SHUAA Partners announced the successful first closing of its third private equity fund, SHUAA Hospitality Fund I (SHFI), with total commitments of US$165 million and a final closing expected at US$ 200 million. SHFI will invest in the development of a diversified portfolio of 5 and 4 star hotels, resorts, serviced apartments and budget business hotel properties which will be managed by Rotana Hotel Management Corporation. The geographic focus of the fund will be the GCC, the Levant and Egypt SHUAA Partners, along with SHUAA Capitals Saudi Arabian subsidiary, had a successful first closing at SAR 900 million of the Sharia-compliant SHUAA Saudi Hospitality Fund I, which aims to develop 17 hospitality properties with 5,000 rooms in the Kingdom of Saudi Arabia ranging from 5 stars to budget hotels, which will be managed by Rotana Hotel Management Corporation. The final close is expected at SAR 2 billion.
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Private Equity in MENA Region

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Private Equity in MENA Region

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Report Steering Committee

Survey of GPs of the MENA region

GVCA Gulf Venture Capital Association

Directory of private equity firms in MENA Sponsors Profiles

February 15th, 2009 Abu Dhabi, UAE

1.2 Definitions and assumptions

1.3 Data filtering

2. GVCA introductory message

2. GVCA introductory message

3. KPMG introductory message

3. KPMG introductory message

4. Private equity in the MENA region

4. Private equity in the MENA region

Cum ula tiv e fun ds ra i s ed a n d i n v es tm en ts m a de s i n ce 2000 Ex cludi n g l i q ui da ted fun ds

eda m s tne m t se vnI

000,02 000,5 000,5 1 000,0 1 -

Governance Matters in MENA Private Equity

Legal Tools for Private Equity in the Current Economic Environment

4. Private equity in the MENA region

Source: Zawya Private Equity Monitor

52 02 5 1 0 1 5 8 1 8002 raey h cae ni se s ol c h tiw sdnu f f o . o N 7002 9 1

Cum ula tiv e fun ds un der m a n a gem en t

ezi s dnu f egare v A

000,02 000,5 1 000,0 1 000,5 -

Average fund size ($million)

4. Private equity in the MENA region

M a jor fun ds ra i s ed i n 2008

G eograp hi c Focus M E NAS A M E NA M E NA/ Turkey M E NAS A/ Turkey M E NA GCC M E NA

Cl os e Firs t Firs t Firs t Firs t S econd S econd Firs t

B uyout B uyout Various

M E NA North Africa Various

Firs t S econd Various

15 0 127 1,117 6,43 4 7,714

V in ta ge fun ds v s a ctua l fun ds ra i s ed

Source: Zawya Private Equity Monitor

de siar dnu f raeY

sdnu f ega tniV

000,7 000,6 000,5 000,4 000,3 000,2 000, 1 -

4. Private equity in the MENA region

Source: Zawya Private Equity Monitor

e v oba dna 000 1

raey ega tniV

000,5 000,4 000,3 000,2 000, 1 -

la tipa c eru tneV

rew op dna ygrenE

raey ega tniV

eru t cur t sar fnI

000,5 000,4 000,3 000,2 000, 1 -

4. Private equity in the MENA region

4.2.2 The fundraising cycle

Fun ds ra i s ed by a n n oun ced y ea r

Source: Zawya Private Equity Monitor

8002 ni de cnu onn A

7002 ni de cnu onn A

6002 ni de cnu onn A

5002 ni de cnu onn A

000,0 1 000,8 000,6 000,4 000,2 -

4.2.3 Funds yet to be raised

Source: Zawya Private Equity Monitor

raey de cnu onn A