ISTANBUL – While investors in the Middle East have long supported private equity funds in the United States and Europe, to date they have been met with few opportunities to invest capital in their own region through professionally managed unquoted funds.
As a result, newly-formed private equity management company Delta Capital Management (DCM) has attracted considerable local interest during the pre-marketing phase for Delta Investment Partners L.P. (DIP), a $120 million-targeted fund focused on Turkey, Egypt and Lebanon.
The impetus for the fund came from the Turkish office of Global Investment Management, the asset management arm of Global Securities. Senior members of the DCM management team are Murat Cavusoglu, CEO of Global Investment Management; Sami Khouri, managing director of Lebanon Invest; Fady Abouchalache, previously a consultant at Bain Capital; and Fadi Majdalani, formerly a consultant with Booz-Allen & Hamilton.
Beirut-based investment bank Lebanon Invest is a shareholder in the management company alongside Global Investment and the four senior members of the management team. Egypt Fund Partners, which manages the Egypt-focused Horus private equity fund, will have co-investment rights with DIP and receive a share of the carried interest split, but the fund is not a shareholder in the management company.
“As the only regional fund with local management teams in Turkey, Egypt and Lebanon, what will distinguish Delta Investment Partners is the level of management support,” Cavusoglu said.
One of the principal deterrents to professional private equity throughout DIP’s target region has been the lack of transparency in private companies, something that DCM believes it can provide to its investors.
In contrast to most unquoted funds active in their target region, which pursue a diversification strategy with little management involvement, DIP will take majority stakes to build a concentrated portfolio. Cavusoglu explained that DCM’s strategy will be to add value through intensive hands-on management “on the principle that, in private equity, the higher the value-added, the higher the returns,” he said.
DIP will target companies with established cash flows and recognized brand names. The fund might also participate in large-scale start-ups based on proven technologies and models, such as new mobile telecom operations, but will not undertake typical venture investments in new-technology-based firms. “Flexibility is key in these underdeveloped markets,” Cavusoglu said. “Also, with so little local competition, there is no need to specialize to differentiate ourselves from other funds.”
Although more than 90% of DIP will be deployed in Turkey, Egypt and Lebanon, where the fund’s managers have the most expertise and perceive there to be most opportunities, the fund’s terms also permits a limited amount of investment in other Middle Eastern and North African markets.
DIP normally will invest between $5 million and $10 million per company. However, the fund offers participants substantial co-investment rights. Cavusoglu said that Turkish and Gulf-based investors in particular are thirsty for co-investment opportunities and predicted that DIP therefore could have the capacity to lead deals involving investments of as much as $50 million per project.
DCM has undertaken an extensive pre-marketing exercise for the fund, which will be structured as a Cayman Islands L.P., and so far has received indications of interest for more than half its target amount, split roughly in half between Gulf and U.S. or European institutions.