Summit Notebook

Being socially responsible investor in the Gulf

Socially responsible investing, which takes into account social, environmental and governance risks, is arguably still in its infancy in the Gulf, where the enormous wealth created by hydrocarbons sometimes flows into extravagant projects like an indoor ski resort.

But Mustafa Abdel-Wadood, managing director of Abraaj Capital – the Middle East’s biggest private equity firm — sees SRI as enlightened self interest and the firm puts its own money where its mouth is.

Fred Sicre, executive director of Abraaj, told us the firm — which signs up to United Nations Principles for Responsible Investing (UNPRI) — has a 5+5+5 plan, where it encourages employees to donate 5% of bonuses to a charitable pool, 5 days for community/charitable work and the firm itself gives 5% of net revenues to a charity. Sicre himself taught at the first class yesterday on entrepreneureship.

“When we invest for pure business reasons into an education business or a hospital group, in a certain sense, we are looking at this also from a sustainable investment (point of view) for this region because the competitiveness of a country is directly linked to the health of the population,” Sicre says.

“We feel we have great opportunities and responsibilities to bring portfolio companies to adhere to sustainble investment practices, whether its security or health standards… It’s just about being good human beings and doing good practical businesses.”

Watch a clip below for Sicre talking about this 5+5+5 plan.

from DealZone:

Diamonds in the rough

Somewhere out there are ailing companies in need of a turnaround specialist. These experts -- also known as company doctors -- parachute into troubled businesses to turn their business around.

Funds, such as Oaktree Capital, HIG Capital and Apollo Management, specialise in buying up companies in distress (either through buying equity or debt) and turning them round.

And this should be a great time for these investors -- banks are loaded with stakes in troubled companies and unwieldy corporates may want to spin off unwanted businesses.

But banks are not playing ball. They want to wait until the economy recovers and sale values rise. So few companies are up for sale. But the funds want bank sales of stakes to accelerate otherwise it might be too late to turn these companies around.

Private equity certainly has the appetite for new deals. As Reuters reported yesterday, the private equity industry -- which may have up to $1 trillion in 'dry powder' -- is looking to the next restructuring wave for opportunities.

"Sponsors want new proprietary deals to show their limited partners they are not just churning portfolios," a top investment banker told the Reuters Restructuring Summit.

Signs of life in Japanese private equity

The conventional wisdom is that private equity is comatose in Japan, at best, with some major firms leaving Tokyo, deal numbers sliding and even old Japan hands like Advantage Partners seen as looking to exit mature investments.

Yet Richard Folsom, Representative Partner of Advantage, tells a very different story with deals in the pipeline, finance on tap and some ripe fruit about to be picked — even if his firm has yet to announce a new investment deal this year.

Private equity in Japan is just over 10 years old, after a rule change in 1997, and makes up about 3-4 percent of merger deals, by Folsom’s math.

That may seem low, but he says the private equity business in Germany and the United States was similarly small at the same stage of their development — suggesting fund buyouts might leap to 10 or 20 percent of deals over the next five or ten years as Japan follows the path set by others.

But he is not just talking theoretically. After the financial crisis made deals hard to value, he sees increasing pressure for hard-hit companies to sell non-core assets as competition increases pressure on them to raise cash to invest in their core businesses.

If they are not getting it from earnings and not getting it from the credit markets, that leaves them looking at divestments, he told the Reuters Japan Investment Summit. 

from Funds Hub:

Counting sheep

By Lorraine Turner

Speakers at the Reuters Hedge Fund and Private Equity summit this week were asked "what keeps you awake at night" and the answers were wide-ranging, from "my 7-week old daughter" to "the next meteorite".

from Funds Hub:

Watch Pi Capital CEO David Giampaolo give his investment outlook

Giampaolo was speaking today at the London leg of the Reuters Hedge Fund and Private Equity Summit.

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from Funds Hub:

Watch hedge fund manager Colin McLean give his market outlook

McLean was speaking today at London leg of the Reuters Hedge Fund and Private Equity Summit.

from Funds Hub:

An unpleasant prospect

There's no shortage of ill will towards bankers at the moment.

But some executives in the private equity and hedge funds industries feel they are getting beaten with the same stick by politicians and the public, despite feeling relatively blameless in this crisis.

BC Partners managing partner Andrew Newington, speaking at the Reuters Hedge Fund & Private Equity Summit in London today, explained.

"There is clearly no political goodwill towards financial services in general and everyone within financial services is being lumped into the same bucket," he said.

"So whether you're an investment bank, whether you're Fred Goodwin, whether you're a private equity firm or hedge fund, it doesn't matter, you appear on a placard at Canary Wharf with a noose around your neck, which isn't a very pleasant prospect."

from Funds Hub:

$3 trillion of hedge fund talent? “Absolute nonsense!”

The once-booming hedge fund industry has shrunk rapidly over the past 9 months to roughly $1-$1.4 trillion, as investors have pulled out their cash following some pretty lacklustre returns.

However, according to Mark Kary, chief executive of Polar Capital, the industry never really deserved to have grown to the best part of $3 trillion in the first place.

He told today's Reuters Hedge Fund and Private Equity Summit in London that while hedge funds had become a "fashion item" in the good times, when it comes down to it there simply isn't enough talent to support an industry of $3 trillion.

    "This went from a $400 billion business to a $3 trillion business in the space of seven years and I just don't think there's enough talent around to be able to do that," he said.

"The idea that you can have 10,000 hedge funds all with a short book, all with a long book, all risk managing and all doing it supremely well is ... absolute nonsense. It's a skill set that only a very small number of people can execute properly."

Some managers, such as John Paulson or Hugh Hendry, have performed very well through the crisis, but they are in the minority.

For many in the industry, who set up when times were good and then rode a rising time in all markets, it seems Kary is onto something.

Audio – And then there were two?

Priceline.com CEO Jeff Boyd told the Reuters Travel and Leisure Summit in New York that he thinks that at least two out of the four players in the online travel sector – Priceline, Orbitz, Travelocity and Expedia – could be in a position for either an IPO or a sale once the economy turns up.

“I think that the most important fact there is that two of the major players are owned by private equity,” he said. ”Orbitz is controlled by Blackstone. And Travelocity and Sabre Group are controlled by TPG and Silver Lake Partners. And what that means is eventually they will be looking for a way to monetize those private equity investments, and there’s two ways of doing it.

One is through a public offering and the other is a sale. So, eventually there’s going to be some transactions there, and that could be a catalyst to some consolidation.”

Young minds, old bodies offer private equity opportunities

Healthcare and education offer a new frontier for Middle East private equity firms as they take advantage of dramatic demographic changes in the region.

At least that’s the view held by Dubai-based private equity player Abraaj Capital.

“With 60 percent of the population, give or take, that’s younger than 30 years old, you’ve got the need for massive investment in infrastructure in order to be able to create employment and cater to this growing population,” Abraaj executive director Fred Sicre said at the Reuters Middle East Investment Summit.

In a report this week, Ernst & Young said the Middle East and North Africa region needs more than $100 billion of joint investment from the public and private sector over the next five years to keep up with population growth.

“As well as having the youngest populations on the planet, we’ve got an increasing number of people going into the 65-plus age range which is where health becomes a really big issue,” said Tom Speechley, also an Abraaj executive director.

“You’ve got chronic under-investment historically in the region so governments have opened up the sector to private investment.”

In the past year, the firm, which operates in the Middle East, North Africa and Asia, has invested in a Turkish private hospital group in Turkey, an Egyptian medical laboratory as well as retail pharmacies and Speechley sees more to come.