Not every investor understands the ins and outs of the Middle East, which can make it difficult for MENA-focused GPs on the fundraising trail to properly explain its potential. Worse still, many LPs tend to lump the MENA region in one bucket, meaning news of political instability in one part of the area can cloud their perception of nearby neighboring countries that are fairly stable. How then does a MENA-focused firm address these challenges during fundraising?
Muhannad Qubbaj’s response:
It certainly was a challenge we encountered when speaking with LPs eight years ago. When travelling to meet international LPs, in particular, we’d find that many didn’t have an allocation within their portfolio to either the GCC or the broader Middle East & North Africa (MENA) geography. Instead, this allocation would be lumped together within “general emerging markets”, “rest of world”.
However, a noticeable change in interest in the region is being seen. Part of that is due to continuous interaction with potential investors coupled with the region becoming a stronger economic hotspot within the global landscape.
What we wanted to do was prove to investors that we were focused and not spread too thin. There is a notion that the MENA region is homogenous. It is true that the 20-plus countries share a common base of languages and religious backgrounds but each jurisdiction has a unique culture, rule of law and demographics, too. Also, political stability varies.
Therefore, our focus has been on the countries that share the most similar qualities: the GCC six, and we compare them with areas with which our prospective investors are familiar, in order to allow them to relate to statistics. An example is that there are close to 50 million people in the GCC and that roughly compares to the population of Korea or Colombia, which are more familiar investment geographies for them.
Another strategy here is that we’ve hired many professionals that are familiar with industry standards in the West by virtue of having attended top universities and working internationally with leading firms.
On a consistent basis, I like to send an email out to LPs the last day of every quarter that has three links to articles published by international entities that opine about the MENA region, objectively. This is part of an ongoing education campaign.
Another important part of that education campaign is to be proactive in explaining the risks in MENA investing. We understand that LPs will hear news of disruption in Syria and other neighboring countries, so we explain what the issues are in any of the troubled areas and follow up with a discussion on how the distance between Syria and the Gulf is a two or three hour flight and although Syria is an Arabic country, there is an array of differences between it and the GCC, their demographics, financial strength and culture; hence any spillover effects are limited.
And then transparency! You can’t hide from the risks. Instead embrace the challenge and explain how you plan to address risks and mitigate issues that may arise due to regulatory change, political instability or other economic challenges.
Given the region’s demographics and projected growth of rate, investors like the upside potential, but want some straight talk about how to mitigate the risks. They expect challenges in the emerging markets. They just want to know about them. They want to feel comfortable the GPs are ready to face them. Let’s always remember: they’re literally our partners!