The potential for private equity growth in the Middle East is undeniable. Opportunities to invest abound. Capital is plentiful. But people are in short supply. Nicholas Lockley looks at how the region is tackling the human capital issue.
Nothing underlines the potential for conflict between firms targeting the same opportunities in the Middle East than the battle for the best talent. By and large, an easy truce reigns as the firms divide up deal flow. But things can get prickly when it comes to competing for people.
The region is booming as oil prices peak. The Gulf Cooperation Council (GCC) countries alone, with an average GDP growth rate of 6.3 percent and a robust population growth rate of 3.5 percent over the past five years, provide an ideal backdrop for investing in the region.
Oil had hit $111 a barrel at the time of going to press and, despite credit markets grinding to a halt in more developed markets, private equity players in the region are more concerned that a lack of experienced executives will limit their ability to convert deal flow into portfolio transactions.
OR AT LEAST SOME ARE.
At Private Equity International's fourth Middle East Forum in Dubai, the issue was a significant point of difference between two of the region's biggest players. Arif Naqvi, founder of Abraaj Capital and a relative emerging market veteran, says he is comfortable with the depth and breadth of talent available.
“The full suite of professional advisers is present and correct. It is not a backwater. It is emerging, but it is emerging fast.”
This is possibly because his firm enjoyed significant first-mover advantage, one investor says. “They have been around for longer than most of their rivals and the experience shows. They have a track record, which is always attractive to the most talented staff. Especially if you are eager to learn and want to do deals,” he says.
Naqvi's rival at Dubai International Capital, Sameer Al Ansari, says he cannot grow his firm as fast as the opportunities present themselves because of a bottleneck in talent. Al Ansari is currently recruiting for a Dubai International Capital-seeded fund to invest in Saudi Arabia.
He says: “We need the right people on board and are in the process of putting the team together. This business is about people.” There is a strong sense that this is a process that cannot be rushed. The risk of mis-hiring is too great. Get the team wrong and the fund is sunk before it has made a single commitment.
The good news is coming however, as Al Ansari observes. If oil money is flowing out of the region, human capital is flowing in and the quality of executives on the way is rising.
A search consultant actively recruiting for firms in the Middle East says the global markets may be turning in the region's favour. “Who wants to sit on the sidelines and watch portfolio companies battle to survive? The banks have turned off the taps and getting new deals away above a certain scale is next to impossible. The Middle East is fast growing with no liquidity issues and emerging market returns potential.”
And he says it increasingly can offer much of the sophistication private equity executives take for granted in the West. “OK so the debt may not be cov-lite. In fact there may not be any leverage at all. But the full suite of professional advisers is present and correct. It is not a backwater. It is emerging, but it is emerging fast.”
This is a point made emphatically by Rabih Khoury, until recently Dubai International Capital's head of emerging markets. Khoury came back to the region after years in New York and London honing his craft. “It is not so different. Dubai for example is an international city with most of what international financiers could need.”
Or, as the search specialist notes: “It is easier to make a case for incoming or returning talent these days. Dubai, for example, is a much more compelling and cosmopolitan city these days with restaurants, shopping and leisure facilities to rival the best.” And they need to be the best, because the packages to lure executives to the region are superb. Excellent salaries, 150 percent bonuses, as well as carried interest are standard. So too is a car, housing and schooling for those with families. Flights back to the homeland are also an obligatory part of the package.
Another attractive feature of pursuing a career in an emerging market is the opportunity to join an emerging firm. This can lead to direct participation in building the firm. Hisham El-Khazindar, co-founding managing director of MENA firm Citadel Capital, explains: “There are six managing directors and three principals. All of whom own shares in Citadel's management company. It was originally two partners, but we have constantly expanded the ownership to attract the best.”
If Citadel differs from some of its competitors it is in its insistence on local talent. El-Khazindar says: “Our people are very rooted in the region. Most have worked in international firms, but they have worked locally. Private equity is a local business. How can you build a local network if you have been in New York for 15 years? We know where the good people are.”
“Good talent goes to the best firms. That is about branding, momentum and perception. Are you closing deals? The more we close the more we attract talent. We are starting to have visibility.”
Karim El Solh, chief executive officer of Gulf Capital, has taken an almost polar opposite point of view.
His firm and Credit Suisse, the Swiss bank with $155 billion (?99 billion) in alternative managed assets, are launching a long-term strategic alliance focused on investing in the fast-growing Gulf and Middle Eastern economies.
Partly the deal is about capital. The two plan to commit a significant but undisclosed amount of investment capital to the venture. It will give Gulf Capital additional firepower to do deals and also access to Western limited partners in Credit Suisse's placement team's Rolodexes when it comes to fundraising.
It will also give them access to the Swiss bank's credit teams when a deal requires leverage.
But for Gulf Capital, in a very real sense this deal is about people. El Solh says: “Good talent goes to the best firms. That is about branding, momentum and perception. Are you closing deals? The more we close the more we attract talent. We are starting to have visibility.”
The deal with Credit Suisse provides the firm with a global calling card in every respect, including recruitment. It is important because in El Solh's opinion: “You have to go global, because the talent is not here. It is a virgin market. There are Arabs abroad who want to come back. This alliance is another proof of our concept for them.”
El Solh also sees the deal as transformational for his home-grown talent. “We will place teams in London and New York where they can work on buyouts and learn from the more experienced executives in the bank.”
The picture then is as multi-faceted as a Picasso. To attract the best talent is a mix of financial, personal and professional incentives. Make sure your firm is the best and busy. Make sure potential employees know it. Whether the best pool to fish is local or global depends on the firm's style.
When it comes to retention, it is more of the same. Success breeds success. Making money is key and learning how to do it is a very motivating reason for a young executive to stay. For the senior team, making money may be enough.