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Sun 8 Apr 2007 12:00 AM

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The moneymakers

James Bennett meets the young Arab entrepreneurs leading the way in the fast-paced world of high finance.

As soon as I meet His Excellency Mohammed Ali Al Hashimi, executive chairman of Zabeel Investments, in his plush office at the heart of Dubai's thriving financial centre he sits me down and tells me a story about time. Or rather the severe lack of it.

"When I worked in London I was asked out for lunch by some bankers and as soon as we stepped out onto the pavement they stated walking ahead of me. I wondered why, at lunchtime, when you have an hour to unwind and relax, they were walking so fast.

"They said ‘we only have 45 minutes, time is money, we have to get ahead', everything is full steam ahead. There's literally no time in the day left to do anything anymore."

Time is now most certainly scarce in many of the Middle East's more developed markets with a flurry of mega deals being signed at lightning pace every day of the week. The region is no longer maturing, it is mature. And it is one industry and its young leaders that have led the way - private equity.

With over 200 privatisations valued at over US$1 trillion in the pipeline in the next 10 years, the regional private equity industry is driving some of the most ambitious and ground-breaking projects in the Middle East.

The majority of its massive liquidity, estimated at close to US$2.5 trillion by accountants KPMG, has been driven by the tripling in the price of oil, huge rises in GDP over the last three consecutive years and massive investment opportunities across the region - and several businesses have taken full advantage.

It is the last two years, however, that has seen regional players take a firm grip on the market and tap into huge amounts of liquidity and newly liberalised countries. KPMG, for example, estimates that 90% of the US$13bn in private equity capital currently under management has been raised in the last 24 months, while investment fundraising in the MENA region in 2006 reached US$7bn, a huge leap on the US$321m raised in 2004. No sector is too big or too small with education, life sciences, real estate, construction, property, pharmaceuticals and media and advertising just a handful of the verticals entered by regional funds.

The inventor

One man that has driven the industry to unprecedented levels is Mohammed Ali Al Hashimi. After starting Amlak, the first publicly listed Islamic finance and mortgage provider, and virtually single-handedly creating an entire sector in Dubai, he took the decision 12 months ago to enter private equity with Zabeel. He hasn't looked back since, entering a wide range of existing but successful and growing businesses - a strategy he wants Zabeel to become known for.

"It's very important that we look at companies that are already established. It's not broken so we're not going to fix it. It must be independent, self-sufficient and be able to perform and do well," he says. "Those companies were doing well before Zabeel came in and they'll continue to do well while Zabeel is there or not, we just hope they'll do better while we're there."

In Al Hashimi's eyes Dubai sits on the world stage in the same way as New York, London, Paris and Tokyo. He calls it an "unstoppable force" and a place that his business is constantly looking not only to invest in, but also to improve.

Since the beginning of the year Zabeel has struck five diverse deals. In March it invested in the construction of a massive 4.5 million sq ft beachfront property along Jumeirah beach; in February it acquired a stake in the Madaares initiative, a private joint stock company launched by the National Bonds Corporation that will look to, in Al Hashimi's words, "set new standards in the education sector both for UAE nationals and expatriates", while it also acquired visual communications industry Electric Orange; and in January it took an equity stake in contracting business Depa Group, and, rather crucially in one of the region's fastest rising private equity stars Abraaj Capital.

Zabeel's model does not look at underperforming or, as Al Hashimi labels them, "sick companies" looking for a reversal in fortunes. He wants businesses that can continue Dubai's electrifying growth.

"Some of the other private equity houses go in, change it quickly and spin it off and get out of it. We want healthy companies and we're going to make them healthier. They are all stars and we're going to see who becomes more of a star."

One of the many stars the executive chairman wants to create and nurture is in education, an area he believes is "lacking" in both quality and investment.

He adds that the business is looking "way in advance" at future prospects to "make sure they're available".

"When you're developing communities and areas, education is the key and these services haven't been developed to the level they can be."

Returns within the education sector are not as high as many others, but this doesn't bother Al Hashimi, who says he doesn't do what he does for money, "You have a choice about where you invest and where you don't. I don't have to do this if I don't want to. I wanted to do something I felt proud of. I love getting up early and getting in my car and seeing some of our sights and playing a part in all this and seeing something coming up - that gives me satisfaction. I want to develop the education part of this world."

As with many in the PE business, Al Hashimi is a long-term player, immediate returns are rare, and even if there is a correction or unforeseen event that changes the business' projected path, you have to be prepared to either predict it before it happens or ride it through. Talk of a real estate bubble bursting in the UAE, for example, is an area he is tired of hearing.

"There may well be a correction at some point, but the market will always remain buoyant. I look at it 10 to 15 years from now and not 12 months. Within any typical sector or investment there are always peaks and troughs. Dubai's strategy is built for the long-term and today is only just the beginning and only a small percentage of a major plan. That's an incentive for me to do well.

He admits that there will be slight dips in "certain areas", but that the UAE would be able to recover because it has diversified its investments so much. "You're not always going to get it right so you have to spread your risk in several areas, some developed and some developing areas, this is where the business is going to be."

Al Hashimi is a unique case in the financial world, heading up both a public and a private company. "Someone once said that life is a juggling act and that the key to success is the ability to juggle as many balls in the air as possible without dropping them. That's what I do and do well."

He certainly does, but for good reason, he's seen the peaks and the troughs, and he's been rejected and been reinvented, that's what private equity players do. "A leading bank once came to meet us at Amlak, they said they couldn't help us because no rules and laws were in place, but once the meeting was over a senior person took me aside and said, ‘what you're doing here is fantastic, I only wish we could help and be part of it'. Now, the bank who said they couldn't work with us are doing what we're doing now and they started doing it when there were no laws or regulations."

The innovator

"We have one more listing coming up, and this one's going to be even bigger", says Khaled Al Muhairy, CEO of Evolvence Capital beaming after having just stepped off the plane from London and the company's Alternative Investment Market (AIM) listing of its US$65m India fund. "I see that the ruler of Dubai has just come back from India and signed some huge deals, slight coincidence or well-planned?" I ask Al Muhairy. He knows the answer before I even ask him. "We've been ahead of the investment curve in India for the past five years and listing in London has been in the pipeline for the past two.

"We wanted to have permanent capital for Evolvence and a listed vehicle on a recognised exchange so investors can access and buy the stock and can have exposure to the private equity market."

Because of Al Muhairy's 13 years in PE, his board position on 3i backed Ithmar Capital and Evolvence's fund of funds expertise he says that he's comfortable with international investors, their demands, the clarity, code of ethics and transparency listing on AIM brings and that as an organisation the business is equipped to handle sophisticated investors.

Al Muhairy also claims another selling point, that Evolvence is the only Gulf institution that has billions of dollars worth of US pension money invested in one of its funds. "We're very proud and this took a long time to achieve", he adds.

The chief executive is not short of ambition in a market he says will continue to rapidly exceed growth expectations over the next five years. Time, as with Al Hashimi, is short, and PE players have to react fast. If not the opportunity can be lost forever. "We couldn't wait anymore to list the India fund because of the meltdown on the Far East markets. This is just the beginning of the India fund. If we grow US$100m every year for five years, and with a compound annual return of 20% to 25% we should be about a billion and something in five years. This could go really big," he says staring admiringly at the AIM plaque that he tells his assistant to hang on a prominent position on the boardroom wall.

Evolvence's activities split, as Al Muhairy puts it, into "three pockets", its principal India flagship fund of funds, its life sciences fund which is heavily involved in the pharmaceuticals market, while the remainder of its work goes into co-investment with fund managers.

Al Muhairy and his team are one of the leading innovators in PE work in the Gulf - if they spot an opportunity with the right returns then they go for it. Despite some regional work, however, the CEO is mainly interested in foreign investment and countries that have scale to support the underlying sectors. India was always going to be a natural choice, he says.

"We had an amazing amount of prominent investors that came in [for the AIM listing], and we have much more time to grow our investor base in Europe by pitching the India story.

"We did this because we understand the Indian market, we've been there for five years and we understand the dynamics, the mentality and the managers. We've very comfortable with it, relative to that we decided that India is a place we want to be for 10 to 15 years and a place where we can scale and raise a large amount of money. The Gulf aspect is that it is very interesting but here it's not scalable, you don't have a billion people."

The Gulf may not have the scale, but Al Muhairy has recently struck a ground-breaking deal to bring one of the UK's oldest institutions, the 450 year-old Repton School in Derbyshire, to Dubai and with it Evolvence Education Holding. "We want to bring some of the best international schools to open in the region. Repton is the largest campus by far in terms of money spent, a US$95m campus. The most people have ever spent on a campus is US$16.3m or US$19m." You can see the excitement in Al Muhairy's eyes. Convincing Repton's bosses to settle in Dubai, its first move in its illustrious history has been a major coup for Evolvence.

"We have the financial muscle to get in front of whoever we want, so it is something we can afford to do, show people we have a great proposition.

"Repton is a boarding school with all the facilities and is done on international specifications. It's a very big coup but it took a very long time to arrange. I mean Repton did not move 450 years of history lightly.

"The Repton Dubai campus will be bigger than Repton UK. And this is only a demonstration of what we can do."

Evolvence Capital is one of the most mature fund of funds leaders in the Middle East with a strong track record, emerging fund portfolio, particularly in India where many are only beginning to invest and an exciting structured future entering markets where many others will only follow. In Al Muhairy's view success in private equity runs along three simple golden rules.

"Phase one, come up with a good idea, phase two, bring in the best people, phase three, structure the fund. Private equity is about people and we constantly strive to follow these three rules."

The investor

Al-Futtaim is a name familiar to many in regional business circles, however its venture into multi million-dollar fund raising is lesser known. Marwan Shehadeh, managing director of Al-Futtaim Capital, however is behind the group's debut US$500m real estate fund that aims to match its Dubai Festival City mega project in four cities across the Middle East.

"We launched the Al-Futtaim Capital MENA real estate fund one and a half months ago for two reasons. Number one, to take advantage of an unprecedented macroeconomic situation in certain Middle East markets that are favourable to real estate developments and after doing a lot of research we identified Abu Dhabi, Cairo, Casablanca and Algiers - these cities have real GDP growth in 2006 of 6.9%, 7.6%, they are booming markets. "Secondly these governments are finally opening up, offering tax breaks, willing to attract foreign direct investment and liberalising their economies."

Focused funds are becoming increasingly common throughout the region leaving the large developers to get on with what they do best.

"We are not a large developer like Emaar. We are focused, have limited resources in terms of manpower and don't pretend to execute 50 projects at the same time. They are all mega projects and require a lot of time, attention and detail," Shehadeh explains.

"We don't just want to tell people ‘give us your money and we'll keep you posted'. We're saying ‘give us your money and this is exactly where the money is going to go, this exactly where the land is located, exactly where the returns are and where the mix is'".

Opportunity is once again the name of the game for Shehadeh and the team of over 500 real estate professionals that Al -Futtaim has at its disposal. "The availability of prime land, which will not be there next year, is an unprecedented offer. Through the Festival City experience we married these two things together, the opportunity, team and experience and created this fund - to leverage that team and execute opportunities that are out there.

Shehadeh says that he is looking to close the fund "before the summer" with very strong interest from GCC investors and "a couple of US investors" as well as "a lot of Asian interest".

Unlike Al Muhairy, however, he believes the India story has been oversold and that the sensible money should be heading Middle East-wards.

"If you look at it, more than 300 million people live here, we have a very young population, very high tourism growth, very young urbanisation rate and the middle classes are rising."

The fund's major characteristic across all four cities will be projects in prime, A-plus urban locations, and as Shehadeh explains, Al-Futtaim will not build an office tower on 50,000 sq m of land, but rather its "edge is building mass planning communities".

Its ‘edge' also comes from the fund's regulators, the Dubai Financial Services Authority (DFSA) and fund structure advisors, Morgan Stanley, with which it has been working and planning the real estate project for over a year.

"This is so we could structure the fund in line with the best worldwide private equity real estate funds. We didn't want to launch the fund before we were regulated, before we had a clear, clean seed asset and before we knew exactly what pipeline we were heading for.

"The story is that it is not just a fund, it is well-structured, regulated and managed by a regulated and licensed entity at the DFSA, it has a clear, very prime seed asset in Cairo, very clear pipeline in all four countries, due diligence, so the story is extremely strong from a fundamental and structure perspective," continues Shehadeh. "All of this combined really is a very strong proposition to anyone that wants to get exposed to the real estate sector."

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