01 December 2015
Global financial assets* to reach US$900 trillion in 2020

London/Dubai - Investor appetite for Private Equity (PE) is set to remain robust globally, benefiting from a rising tide of global financial assets and the outperformance of PE funds compared to other asset classes, according to Roberto Quarta, Partner and Chairman of Clayton, Dubilier& Rice Europe (CD&R), one of the most experienced and respected global private equity firms.

He said that private equity has outperformed its competitors over the past decade, with a 10-year annualised total return for PE averaging 13%, compared to 4% for Emerging Markets Equities, 7% for the S&P 500, and7% for High Yield Bonds. "Financial Engineering" was not enough anymore to make such returns in a consistent way over time, although this may have been the story of PE in its early days. Today, with the maturity of the industry, almost 100% of Limited Partners in Private Equity globally are looking for active management of PE firms for their portfolio companies, according to him. In the Middle East and North Africa region, 59% of private equity firms believe that the "ability to add value" is the strongest competitive differentiator in the local market.

"PE firms have to demonstrate their ability to create operational value in multiple cycles of the economy. They also have to return capital to investors in predictable as opposed to random ways, and they have to have a clear track record of not only generating returns, but also improving the earnings of the companies they invest in," explained Roberto Quarta who is also a member of the Investment Committee of Italy's Sovereign Wealth Fund, FondoStrategicoItaliano, Chairman of publically listed company WPP plc and Chairman of Smith & Nephew plc.

When global financial assets are growing at enormous rates, marking a 271% growth from US$221 trillion in 1990 to US$600 trillion in 2010 and are projected to reach US$900 trillion in 2020, private equity will continue to benefit from a larger share of this rising tide of assets, driven by outperforming other asset classes.

Since 2000, there has been over 500% growth in PE assets under management and over 100% growth in the number of PE firms.

The Middle East, which has some of the most sophisticated SWFs and HNWIs, is catching up on this trend. "The Middle East is an incredibly important region for us. A number of the large institutional investors from the region are invested in our funds.

"As an industry, private equity has truly gone global," said Roberto Quarta. "Latin America, the Middle East and Asia represent enormous pools of capital for GPs' fundraising, as important as North America and Europe.

However, the market is already seeing that investors' capital is being consolidated with perceived "winners," which means PE firms which can demonstrate distinctive value add. Deal flow is also going to the players who have real capabilities to help their portfolio businesses go to the next level of operational excellence.

"We are beginning to see some early signs of the consolidation and weeding out the winners from the losers. Family business owners, such as those in the Middle East, are becoming more sophisticated about managing their businesses institutionally and are looking for partners with the experience and skills that will help them do this even more effectively.  Likewise, investorsfavour managers who demonstrate specialised capabilities, such as operating skills," said Roberto Quarta.

In a recent comparison of developing regions, the World Economic Forum concluded that MENA was ripe to benefit from advance professional management and additional drivers of efficiency, something that PE firms with a strong operational approach bring with them. With many companies in the Middle East still maturing in terms of corporate infrastructure, management and governance best practices and operational excellence, private equity firms with highly developed operating skills and the experience necessary to build a stronger business can be a vehicle for transformation for these local businesses.

"We have seen in the recent years the MENA PE investors have started building admirable global businesses, which have been acquired by international trade or financial buyers. CD&R, for one, sourced a deal from the region, when in 2014 we acquired a German business, Mauser, from Middle East investor Dubai International Capital. Other transactions have also been completed in the past few years with European, Asian and American strategic buyers acquiring Middle East homegrown companies which have gone global."

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For more information, please contact: Randa Mazzawi randa@boroujconsulting.com or Mayssa Makhlouf mayssa@boroujconsulting.com at Tel: +9714 3403005, Follow us on Twitter @Borouj.

Note:
Please note that these are all the financial assets including Private Equity, as well as other traditional and alternative investment asset classes.

© Press Release 2015