Founded in 1992 as continental Europe’s first independent private equity placement agent, to date Triago has raised more than 130 funds and transferred more than 800 secondary positions. Today, Triago enjoys a presence on six continents operating out of their offices in New York, Paris and recently Dubai, which was inaugurated in 2007. Executive sat down with chairman and CEO Antoine Dréan and managing director Middle East Jean Aboumrad to get an insider’s view on what’s happening in the private equity market in the region and around the world.
E Are private equity (PE) firms having difficulty finding investors, given current financial conditions, and is it becoming harder to find investors for venture capital or growth capital?
Dréan — Yes, in big letters, even though it is not mission impossible. There are about 1,000 active investors in this asset class worldwide and probably two-thirds of them are on the sidelines waiting for better times, broke or with no cash for PE because they are already way above their ratios. That’s two-thirds, but there is one third that is fully ready to work. They are obviously a bit more cautious, they take more time, they look under every rock to make sure that there are no traps, but they still put money out. We have been through some ups and downs but we always find money because we look at where it is has gone. [The money] used to be in the US and Europe, then it used to be here and now it’s probably less from here and more from the US again and from Asia.
E What prospects exist for your investors, given what is happening in the region?
Aboumrad — The current trend in the region today is that you have the usual investors and usual suspects who used to commit a lot of money to this asset class, namely the sovereign wealth funds (SWFs) and the pension funds in all of the countries of the region. These guys still have funds allocated for PE and they will still commit. The other chunk of money that used to invest in this space was more family offices. Now families are much more cautious. They have put all their investment programs on hold. Some of them don’t have money anymore so they cannot invest. Others will still have liquidity but they are just more cautious. In terms of numbers, the amounts invested by the SWFs can very easily cover the amount [of money in family conglomerates] because families put less sizeable amounts than SWFs. So in the PE space there is still money but probably less than last year. Also, there is still money in the Middle East, the US and even in Asia. Now definitely buyout and large buyout, which was trendy last year and the year before, is basically finished because there is no leverage anymore. This will become buyout without leverage or even de-leveraged buyout.
So money will move more into growth capital or other capital like distress, mezzanine, and restructuring, and focus on more niche strategies and less typical buyout funds.
E You have been in the region since 1993, but did not open your Dubai office until 2007. Why did you wait so long?
Dréan — It’s difficult to know for certain when exactly in the cycle you are entering a space, but what is important is to start and this is what we did. In effect, 2007 was also a good year for the PE secondary market. In 2004 we added the secondary business. Most of what we thought we would do here when we setup shop in 2007 was on the primary side, but in fact we were almost 100 percent wrong. We are now funding a lot of sellers even in this region. People here now face some stress and some of them are very anxious. They are saying, ‘all my illiquid stuff, all the investments that are not really poor or those that I have doubts about, I am selling’. So we are seeing a lot of secondary business coming our way. In 2007 we were already thinking ‘well, this is too good to be true’ and that the party would be over at some point. Where it would come from and when, no one really knew.
E What has been your greatest challenge in the MENA market since you started operating in the region?
Aboumrad — First, covering the entire space that the region offers has been a challenge. Second, in order to invest in the PE space investors have to be mature investors. Most of the SWFs and pension funds have staff for that. Most of the families in the region, however, who have a lot of wealth and had already invested in this asset class, did not really know what was going on. In Europe, it is easier to speak with specialists in this area or with families and institutions who have their asset allocation [in place]. Here, people were much more opportunistic. There was a kind of raising awareness, which wasn’t that easy. In the past couple of years PE has become very trendy. If you called investors and ask them to invest in this space they never said ‘no’. Now there is less money and you have to dig to find it, so we are having more and more business. In a sense the situation is actually better for us.
Dréan — We are actually profiting from this mess.
E What do you see happening with PE in the Levant?
Aboumrad — We have a lot of relationships in Lebanon. In Syria we do as well, but so far the Syrians haven’t yet entered this asset class. Financial institutions are quite young there and in terms of Syrian investors, if they cover this asset class, they do it from abroad and it’s never done from Syria. In Jordan and Egypt we know mostly general partners (GPs) but the biggest amount of energy and time spent is in the GCC because the money is there.
E How will you manage things going forward in terms of which funds you adopt?
Dréan — We have to look at fund managers and their history, track record and where they are coming from. Almost every fund manager has one or two poor assets that they try to hide a little bit. Today we would not be interested in a leveraged buyout (LBO) fund because they are having a hard time managing what they already have. The most difficult part of this asset class is that the past is not a guarantee for the future. Some fund managers were superstars for 10 years and then their business disappeared. They will still be able to raise money because some investors only look in the rear view mirror and say, ‘wow, these guys were great so they must be great forever’, and that is sometimes a big mistake.
E What is happening to LBOs now that the regional economy is on a downward slope?
Aboumrad — There was a lot of financial engineering in the leveraged component of the buyout, firstly in the leverage itself and especially in the securitization of this debt. Western banks were very eager to give a lot of money. They knew how to do it and they knew how to sell it afterwards so as not to have it on their balance sheets. This is what actually pushed them to give out more money and what created the bubble we have now. In this region, we didn’t have this level of sophistication. There was more obvious lending and this is why local banks and all the syndicated loans that were given were not as sophisticated or aggressive as those in the West. Going forward there is a lot less leverage everywhere. Most of the new strategies and funds that are going to be raised now, and most of the deals that should be done in the region, will focus more on growth capital and restructuring because those strategies require less leverage, if any, than the usual buyout.
E What do you think the future holds for the secondary market in the region now that investors are so eager to liquidate their holdings?
Aboumrad — Now the secondary market is extremely important, especially investing in PE and illiquid assets. When an investor invests in the [primary] PE market, the lockup period is typically 10 or 12 years and there is no easy way to get out of this investment. Nowadays, most of the investors who invested in this asset class are looking for liquidity options because either they don’t have a choice or for strategic reasons. There is not a lot of awareness in the region about this market in particular. Most of the time, we have discussions with investors who don’t really know that the secondary market exists or how we manage it. Sellers do not usually give out this information and agents cannot because of non-disclosure agreements. The only information that you have in this market is information given by the buyers and it is in their interest to say that they are buying very cheaply. So when we speak with investors and raise the secondary option they say that they are not that distressed. We tell them that in reality the situation is not that distressed and the deals being done are not that distressed anyway. It is a discount market nowadays. Six months ago it was more of a premium market, but it’s still not as depressed as one might think.
Dréan — It’s a very inefficient market. It usually deals with one and the same asset and on the same day with only two parties. [The asset] will go for $0.20 on the dollar to $0.80 on the dollar. So if you know how to sell private equity you will get $0.60 to $0.80; if you don’t you will get very poor prices and there won’t be a chance to go back.
