Forewarned is Forearmed: Raising Investment Fund Capital in the Middle East

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A quick presentation on the pitfalls and problems of raising investment fund capital in the Middle East, as well as the pros & cons of the various strategies used when attempting to penetrate this historically difficult - yet highly lucrative - market.

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Forewarned is Forearmed: Raising Investment Fund Capital in the Middle East

  1. 1. Forewarned Is ForearmedUnderstanding The Obstacles To Raising Capital In The Middle EastFriso Buker MBA MSc
  2. 2. The Good News
  3. 3. Proportion of UHNW Households (per 100,000) ¹ UAE 5 ¹ UHNW households: more than US $100 Singapore 5 million in AuM Denmark 5 Qatar 6 Norway 7 Austria 8 Kuwait 8 Hong Kong 9 Switzerland 10Saudi Arabia 18
  4. 4. Proportion of Millionaire Households (%) Belgium 3.1% Israel 3.4% Taiwan 3.5%United States 4.5% UAE 5.0% Kuwait 8.5% Hong Kong 8.7% Qatar 8.9% Switzerland 9.9% Singapore 15.5%
  5. 5. And That’s Not All........ Wealth as AuM Over US $500 billion 2009 – 10: US $4.5 trillion (+8.6%) currently controlled by 2010 – 15: US $6.7 trillion (+49%) women 66% of Offshore Funds Private Wealth (GDP %) in Dubai Saudi Arabia 81% Kuwait 68% Saudi Arabia + Turkey + Iran + Kuwait + Russia Qatar 65% UAE 63%
  6. 6. The “Not SoGood” News
  7. 7. Current GCC Household Investment Trends Bonds • Very few managed 13% funds in household portfolios Cash and • Increased emphasis on Regional Short Term wealth preservation or Local Deposits rather than wealth Equity creation → more real Markets 56% estate, low yield 31% sovereign and corporate bonds
  8. 8. CONCLUSION Financial crisis Increased risk aversion Extremely difficult to raise investment capital in the MENA region
  9. 9. That’s Not TheWhole Story...
  10. 10.  Global financial circumstances are only partly to blame Raising capital in the Middle East has always been difficult Lack of cultural awareness → ineffective capital raising strategies have barely changed Failure to adapt to - or even understand - regional business customs & practices continues to be a major obstacle
  11. 11. “It’s The Culture, Stupid” Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster. Prof. Geert Hofstede, Emeritus Professor, Maastricht University, Netherlands
  12. 12. Qataris unmoved bywealth managersMany fund managers are coming to the realizationthat tapping into surging wealth in Qatar and therest of the Gulf region would not happenovernight, and could require investment inoffices, branding and marketing for years oreven decades
  13. 13. No honey, no money: Wealthmanagers learn the regionalropesInvestment managers must go beyond facts andlearn to woo potential clients in the regionthrough good reputation and genuinehuman connection
  14. 14. The Nature ofDoing Business in the Middle East
  15. 15. “Know Your Customer” High Collectivist High Power High Distance Context “Polychronic”
  16. 16. General Cultural Determinants High Collectivist • Strong emphasis on family, tribe and country • Critical values include honour, face, trust and hospitality High Power Distance • Extremely bureaucratic • Numerous power brokers and decision-making layers High Context • Collectivism, status and the need to save face is paramount • Aided by complex communication “system” that are more implicit than explicit “Polychronic” • Complex management of time that is largely relationship-driven • Timing and diplomacy supersedes the need for urgency
  17. 17. Middle EasternBusiness Success Factors
  18. 18. Business Success Factors “Business is personal” • Long distance relationships rarely work • Building personal relationships with investor(s) is key • Cold calls do not work; referrals or references are a must • Building a beneficial relationship: 8 – 48 months• The Spoken Word • Contact with potential client → excessive amount of pleasantries and small talk • Middle Eastern cultures place a premium on trustworthiness and “getting to know you” • Contracts are more like codified MoUs that underpin a trusting relationship. Focus on the relationship rather than just the contract!!
  19. 19. Business Success Factors The Decision-Makers • Most of the power to make decisions lies in the hands of a very select group of individuals • Delegation of power is based more on loyalty than efficiency or competence • The number of decision-makers will almost certainly hamper the negotiation process • Build relationships with everyone to varying degrees; from “pencil pushers” to the top • Do you really know who is making the final decision?
  20. 20. Market Entry Strategies
  21. 21. The “Permanent Presence” Strategy Funds (ring fenced) $2 million + Salaries + allowances $80K+ pm Office rent $10K+ pm Legal fees $10K+ Duration 8 months Total $2.4 million +  Licensed, regulated presence  Time, effort and money  Regulatory / licensing hurdles  Still no network of investors
  22. 22. The “Placement Agent” Strategy Retainer Negotiable % of underlying fees Negotiable Office rent None Legal fees None Duration Variable Total Dependent on success  Low cost, local representation  Historically ineffective  No indication if demand exists  Chances for misrepresentation
  23. 23. The “Trusted Representative” Strategy Yearly travel costs $4,000 Hotel costs $8,000 Entertainment $10,000 Transportation $2,000 Duration “on-site” 20 days Total $24,000  Active representation  Historically ineffective  Limited networking chances  Small number of funds  Poor investor perception  Not local
  24. 24. The “Investor Guide” Strategy Fees per quarter $10K + Yearly travel costs $4,000 Hotel costs $8,000 Entertainment $10,000 Transportation $2,000 Duration “on-site” 20 days Total $64,000 +  Relatively effective  Are the meetings worthwhile?  Relatively good cost / benefit  Guides not licensed  Local  No definable track record  Limited or no “follow up”  High average daily cost
  25. 25. When You Get It Right...
  26. 26. You Get The Meeting !! How long will this take? Decision Third level meeting 3 – 6 months Second level meeting(s) 1 – 3 months First level meeting(s) 1 – 4 weeks
  27. 27. The Ideal Strategy
  28. 28. Conclusion: The Ideal Strategy Middle Eastern culture – even in business – is significantly different to Western business culture, so adapt to it Establish a permanent presence in your market and use it to build relationships Accept that it will take time and effort to make decent progress Adapt to Arab cultural norms Understand your client One success may quickly lead to others once financial and personal trustworthiness has been established
  29. 29. Thank You ForYour Attention ae.linkedin.com/in/frisobuker/

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