Faced with a tight fundraising market, fund managers are constantly seeking to diversify their LP base to include investors from new geographies. In the past, many assumed a trip to the Middle East would offer some lucrative opportunities.
However, numerous countries in the region have made it notoriously difficult to court investors with some regulations failing to differentiate between Grandma investing her nest egg and a savvy institutional investor. But that may change.
Sources tell PEM that the member states of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) will consider this autumn a non-binding set of principles for private investment funds, including the introduction of comprehensive private placement regimes.
It makes sense considering the GCC is currently discussing unified regulations in other areas. Last June the member states agreed to synchronise their rules for market listings by 2013.
The private equity community would undoubtedly welcome reform of the current patchwork of marketing rules across the GCC. Many industry participants have criticised recent proposals or rules released by Gulf States which show a poor understanding of the private equity model.
The UAE recently introduced a number of new proposals subjecting foreign funds to a slew of new registration and reporting requirements and transparency measures. Among other headaches the proposals would require foreign funds to employ a UAE intermediary to supervise the promotion of a fund, a safeguard primarily intended for retail investors.
Meanwhile, in Kuwait, proposals released earlier this year would require limited partners to pay the full value of their pledged capital at the outset of their commitment. This is in stark contrast to normal practice where GPs call down capital only as investments are made.
Unifying fund rules across all GCC states further advances the argument for a marketing passport across the bloc
A spokesperson for the Emirates Securities and Commodities Authority, the UAE’s market watchdog agency, said the government was inspecting regulatory models used across the world to shape its own regime. However, the spokesperson did not elaborate what this meant for the government’s fund proposals.
Fortunately, UAE regulators are planning to revise the proposed regulations to address certain industry concerns. Couple this with a harmonised framework orchestrated by GCC principles and the result is a private placement regime more in line with carefully developed Western standards.
Unifying fund rules across all GCC states further advances the argument for a marketing passport across the bloc. The EU is doing just that as it undergoes the process of harmonising private placement regimes under the incoming Alternative Investment Fund Managers directive.
Should marketing become more straightforward in the Middle East, the timing couldn’t be better for GPs on the fundraising trail. A clear and concise private placement regime would allow these Middle Eastern jurisdictions to become a larger source for private equity commitments.