Ahead of Super Return Middle East, Simon Hailes and Jess Gill explore the unparalleled growth dynamics of the Middle East, the impact this will have on investors and the reputational considerations key to their future success.
As the global economy braces for the impacts of a broad-based slowdown, the Middle East & North Africa (MENA) region is powering up, providing a wake-up call for investors.
Surging growth
Economic growth across MENA is forecast to close out 2022 at 5.2%¹ , surging ahead of China at 4.2%, and the opportunity for investors to participate in structural growth across the region has become increasingly compelling.
Policy initiatives across GCC nations to diversify economies and provide the critical infrastructure needed to transition away from hydrocarbons and towards the future digital economy are driving significant new opportunities for investors. This stimulus provides a nexus for private investment in the trends reshaping industries, companies and societies.
Private capital influx drives two key trends
Increased capital flows into MENA economies will expedite three longer-term trends already playing out across the region.
First, the evolution of the region’s Sovereign Wealth Funds. Increasingly sophisticated, this group are adopting more financially ambitious strategies, evolving from the role of Limited Partner to General Partner by making their own direct investments, managing their own assets and creating their own value.
Second, the growing remit of the family office (FO) investor. As recipients of far greater capital, FOs must embrace a growth mindset; as capital increases, so too will expectation levels.
Third, the world’s largest global investors are increasingly looking to the MENA region for high-yield returns and are establishing a much larger physical presence in key financial centres.
The growth opportunity in Middle Eastern economies is so great that all those in charge of capital allocations may find themselves considering direct and co-investment alongside existing fund allocation strategies. In this sense, every significant investor in the Middle East may become a General Partner in the coming years.
The new role of direct investor creates new communications imperatives for both SWFs and FOs. Allocation decisions as a Limited Partner are far removed from the public eye, affording investors the luxury of choice – to make decisions and conduct business in private. Direct investors have no such option.
Reputational considerations for direct investors
In order to transact, direct investors must explain their rationale for investing and what they’re bringing to the table as owners of assets. Buyout and growth equity has become increasingly crowded in recent years as many investors chase a finite number of assets. Reputation, built through clear and intelligent communication, is now a prerequisite to compete successfully within these arenas, as unknown or misunderstood buyers are rarely trusted.
Once invested, stakeholders in an asset will want to understand how an owner – the General Partner – creates value. This requires strategic communication across audiences, from employees and consumers to regulators and the media. Leaving a vacuum, or getting this communication wrong, can have long-term repercussions for an investor’s reputation and licence to operate.
Middle Eastern investors have a compelling story to tell. Investment horizons tend to be longer-term relative to other private equity investors, making them appealing partners for businesses. Moreover, the heritage of entrepreneurialism of the Middle East – a spirit and drive that have turned vision and ambition into thriving cities and societies – is a story that can resonate with businesses globally.
As investors across the Middle East embrace the evolution of their role into becoming direct investors, they will also face greater scrutiny as owners of assets. Now is the time for them to assess whether their communications capabilities are fit for the dynamic financial role they are set to assume.