| Kippreport.com

Local knowledge

December 21, 2009 5:47 by Jay Akasie

One of the ways Amwal AlKhaleej capitalizes on its familiarity with the local markets is to avoid the common trap of imitating certain types of Western firms. Many private equity shops here tried too hard to run themselves as if they were the largest and best known of Wall Street’s leveraged buyout firms.

What al-Khudairy reminds his investors is that the lion’s share of American private equity firms are not big LBOs. Most of those shops prefer instead to buy into the management of middle-market companies. That middle market sweet spot is even more prevalent in the Middle East for firms wanting to grow capital, he says.

“All you hear about are a few of the really big players in the West. People come here and say ‘I want to do what the really big Western private equity shops do.’ That’s only a slim part of the market. We focus on buying in on existing management so that the owner has skin in the game. That’s extremely important for the many family owned companies in this region,” al-Khudairy says.

Next year his firm plans to raise its third partnership. Of course, money for a seven-year vehicle is going to be scarcer this time around. But al-Khudairy is banking on a resilient Middle Eastern economy and a proven track record with his two previous funds. Not to mention the fact that the family-owned companies here really do appreciate his indigenous approach.

“The Riyadh office of Amwal is 50 percent Saudi, for example. To be sure, we have Columbia, Harvard and Wharton MBAs throughout our firm. It’s a fantastic team not only because of its many Ivy League degrees, but because it’s from the region and dedicated to the region,” he says.

A regional investment firm recently reported that Middle East funds made 69 investments worth a total of $3.9 billion in 2007. Last year, those funds closed just $500 million worth of deals, accounting for far less than the capital they raised. Al-Khudairy says part of the problem for many failed firms was that they concentrated entirely on the money they could raise and what they could charge in fees.

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Tags: Banking & Finance, Economy, financial institutions, gcc