MENA Private Equity Trends & 2016 Hiring Forecast
Wednesday, December 23, 2015 | Tim Cox, Head of the Financial Services Practice at Moorland Gray
Moorland Gray has been working to support the growth aspirations of regional and global Private Equity firms in the MENA region since 2006. Over time, we have witnessed many trends come and go, and a lot of change in the market and the players involved. However, there have been a number of constants during this period and anyone who has had any exposure to the regional Private Equity market will likely have heard the same themes time and again:
- "The sectors I am focusing on are Education and Healthcare."
- "I am most interested in deploying capital in the UAE and KSA."
- "The fundraising environment is really difficult."
- "It is tough to deploy capital as everyone is after the same investments."
- "Valuations are crazy."
If executive search firms are any barometer of the market, then 2015 has been a good year for Private Equity. We have been more active in the sector than at any time since 2010/2011, with hiring activity across the region for GPs, Sovereign Wealth Funds and Family Offices in the private markets space.
Although some hiring activity is ostensibly to help firms gain an advantage over their competitors within the 5 themes above, it is clear that there is a "perfect storm" in the sector which is really pushing a longer term change agenda. Geopolitical issues, low oil prices and "herd mentality" have created a situation where it is almost impossible for GPs to deploy all of their dry powder in over-competitive and overpriced MENA markets with relatively small typical deal sizes of c$30m. GPs are therefore finding it harder to meet the expectations of their LPs who are simultaneously seeking to deploy more of their capital globally.
This is driving Private Equity firms to examine their business models and look at alternative avenues for deploying capital. This could be moving toward a more Venture Capital oriented model – working with prominent entrepreneurs at an earlier stage of project development. It could be looking at different sectors (food and agribusiness has been a theme in 2015). It could equally be a wider geographical mandate (Africa, Central and South Asia in particular). While these are not the reasons for every new hire in 2015, they have certainly driven at least 50% of our work as Private Equity firms gear up for a greater degree of diversification in 2016 and beyond.
So what does this mean for the regional Private Equity talent landscape in 2016?
- We expect to see further hiring activity in Private Equity which may well accelerate as candidates start to move post-bonus in Q1.
- With such a small pool of regional talent available and new geographies/sectors to target, hiring managers will be forced to look outside the region for candidates and consider candidates from targeted industry sectors who may have transferable skillsets.
- Although one might assume that the demand for fresh blood would exert upward pressure on compensation, we do not believe this to be the case due to strong alignment in this respect among regional Private Equity firms.
In summary, we believe that regional developments over the past year are going to have a real impact on what the MENA Private Equity industry looks like in 2016 and beyond. Will we look back and see 2015/2016 as the tipping point where we finally start to see more of our regional investment firms take a step on the path to becoming established on the global stage?