The firm’s Amwal 1 vehicle, which has so far secured five exits from investments, has logged an unlevered internal rate of return of 39 per cent before fees, with assets under management of $226 million. . Even once fees are deducted, that 39 per cent IRR is a result to crow about.

Samer Sarraf, who recently spoke to this publication in London during a business trip, knows that one of the benefits of getting high figures on the board is that it puts his business in a stronger position to raise more money in future from people eager to stay on a trend.

“There are good opportunities to invest, if not quite as many as some people were expecting,” he said at the sidelines of a conference held at the London Business School recently; the conference focused on Middle East issues.

The Amwal Al Khaleej firm has, unsurprisingly, been praising the virtues of its MENA region for its potential, not surprising given the benefits of oil wealth. Recent figures, on the face of it, look less encouraging, however. In June, the firm, in conjunction with the Wharton University of Pennsylvania, wrote a report in which it pointed out that the relatively young Middle East private equity market had seen relatively few exits. Of the 218 investments made by private equity funds since 2004, only 14 had reached exit by 2009; further significant divestments since then had been stymied by the financial crisis.

But an undeveloped market, if these figures are a guide, has plenty of room on the upside.

Against a backdrop of relatively few exits, any firm that has several under its belt is bound to draw attention to a firm such as Amwal Al Khaleej. Recent findings from Preqin, the private equity research organisation, also show there is a link between past performance and future fund-raising success, which would bode well for this firm in the future.

For example, the majority of fund managers with a predecessor fund ranked in the top quartile saw a marked increase in subsequent fund size, Preqin says in a report called Survival of the Fittest. Some 72 per cent of firms with top quartile predecessor funds had a successor fund that was more than 25 per cent larger in size.

Minority stakes

Amwal Al Khaleej’s funds invest in the MENA region, such as the Gulf Co-operation Council countries as well as Egypt and Lebanon. In contrast to many private equity buyout funds, the firm takes minority stakes in business, and does not use leverage.  

“We take controlling stakes sometimes but most of our investments have been minorities,” said Sarraf, an ex-employee of Lehman Brothers’ mergers team who left a few months before that bank imploded in the autumn of 2008.

Minority stakes are a common feature. In the Wharton/ Amwal Al Khaleej report cited earlier, it noted that almost three-quarters of all private equity deals in the region in 2008 were for stakes of 49 per cent or less. An issue is that lack of capital is not a reason for a relative paucity of deals. Rather, the problem is that firms are not usually for sale. It is all the more important to be a firm with local expertise to find any opportunities going, said Sarraf.

The firm invests in a variety of sectors apart from real estate. For example, it invests in Saudi-based leisure, entertainment, education and manufacturing businesses, he said, playing to the youthful demographics of that part of the world.

Among that fund’s investments by name are: Al Tayyar Travel Group; Acwa Power; Damas – a jewellery retailer; Arabia Cotton Ginning; Egyptian Propylene and Polypropylene; Nass Corporation – an electrical engineering and civil engineering firm; Bank Audi and Lebanese Canadian Bank .

The second fund, Amwal II, holds around $300 million of assets, with a limited number of regional investors plus one undisclosed institutional investor. This vehicle was closed in May 2007 with commitments of $290 million and about 93 per cent of that money has been 93 per cent deployed.

The potential size of the MENA private equity market looks to be on a sharp upward trend, even though geopolitics can keep investors wary. Since 2001, for example, when the Middle East region accounted for less than 2 per cent of emerging market private equity deals, it had risen to 10 per cent by 2008.

This is not the easiest market for private equity – but then as Sarraf and his colleagues would be the first to note, the rewards for an investor willing to put in the study and time can earn rich rewards.