It’s hard to enter when you can’t exit

Romen Mathieu and Gilles de Clerck explain the challenges facing private equity in the Middle East

Gilles de Clerck and Romen Mathieu (Greg Demarque | Executive)

EuroMena is a series of private equity funds managed by Capital Trust Group. The latest fund, EuroMena III, launched in June 2014 and aims to provide financing to fast growing industries in the MENA region. Executive sat down with managing director Romen Mathieu and executive director Gilles de Clerck.

 

Since we last spoke in June, EuroMena III has raised its first closing at $100 million. How close are you to your second closing?

RM: The objective is $200 million. $150–$200 million. At $150 million, we will be very happy. And we’re there, at $150 million. Consider it done. By February we’ll [formally] do the second closing at $150 million, then probably [we will need] another three, four [or] five months to reach the $200 million [mark]. Now if we’re lucky, we’ll reach $200 million by February or March.

 

Have you made any investments yet?

RM: No, not yet. We have made our first capital call, and I think the first investment or probably two investments should be made before the first quarter of 2015.

 

Your clients in the first two EuroMena funds include both institutional clients, such as the European Investment Bank, as well as family groups. Are their appetites changing?

RM: Look, the hardest thing you can do in our business is fundraising and exiting. In Europe it’s fundraising; exiting is easy because you have stock markets. We are in a region with no stock markets and it’s very difficult to exit. But fundraising is even more difficult. Because when you go to sell to someone and say: ‘Hi, I’m raising a private equity fund, give me your money — but you know, I don’t know when I will invest it, I don’t know when I will call it, I don’t know how much return I will get on a yearly basis, I don’t know when I will exit, and I don’t even know if I will give you the money back. And don’t ask me which companies I am going to invest in, I don’t even know that yet,’ the pitch is very difficult. The people that invest with us are the people who know us very well, who have seen us working and seen our track record. They are the ones who come and invest with us, or they’re very close to people who have already invested with us.

 

In terms of private equity, there are not a lot of funds based in Lebanon. Some banks have attempted it, but there are none now. Why is there so little private equity based in Lebanon?

RM: Because small is not beautiful in our business. So setting up a small fund of $10 [or] $20 million to make private equity in the region [is] not viable. The management fees won’t allow you to pay competent people to do due diligence. And for what you invest, you only get a small capital gain. You have to have a big fund. If a bank is involved in a fund, it doesn’t work. A banker is a banker, and an investor is an investor. All the funds where you had a bank involved just didn’t work out.

We’re in a region where exits aren’t easy. If you grow a company in Lebanon and you want to sell it — impossible. You don’t have stock markets here. You want to bring someone to buy a company in Lebanon today? I mean, who would come and buy a company in Lebanon today? So our secret recipe  when we invest in a company is to take it regionally, to diversify the risk.

 

Even in the Middle East, if you look at data from the Middle East Private Equity Association, the amount of new funds created per year and total amounts raised is decreasing. Why is this the case?

GC: The fact that there are few funds suggests you have more maturity in this industry. People now understand that it’s not a business for amateurs, and that it’s difficult. Only the good ones who were successful in the initial years were able to continue and to carve out new teams that have been able themselves to raise funds.

RM: In the whole region, as Gilles said, first time players are being wiped out. The people who have stayed are those who have really proved that they have a track record, a business model and a serious reputation, which is very important in our business.

GC: I think if you look at the percentage of private equity as a part of the GDP, in this part of the world we’re still behind Europe 20 or 30 times, and 50 times behind the US. So there is still room to develop.

 

Well that begs the question, where do you want to go with this? What’s after EuroMena III?

RM: One billion [dollars]. If you know to drive on the right side, you continue to drive on the right side. Why would you go over to the left side? This is our everyday job. It’s private equity. We’ll never do anything other than private equity.

Livia Murray

Livia covers business, finance and economic policy for Executive.

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