Delta on Gulf course

While investors in the Gulf region have long been substantial supporters of US and European private equity funds, to date they have met with few opportunities to channel capital into their domestic region through professionally managed unquoted funds.

In consequence, newly-formed private equity management company Delta Capital Management (DCM) has attracted considerable local interest during the pre-marketing phase for Delta Investment Partners LP (DIP), a $120 million target fund focused on Turkey, Egypt and the 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, the managing director of Lebanon Invest; Fady Abouchalache, previously a Bain consultant; 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, but is not a shareholder in the management company.

“As the only regional fund with local management teams in Turkey, Egypt and the Lebanon, what will distinguish Delta Investment Partners is the level of management support,” Murat Cavusoglu says.

One of the principal deterrents to professional private equity throughout DIP’s target region has been the lack of transparency among private companies, something that DCM believes it can provide for its investors.

In contrast to most of the unquoted funds active in its target region, which pursue a diversification strategy with little management involvement, DIP will in general take majority stakes to build a concentrated portfolio. Cavusoglu explains 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’.

DIP will normally target companies with established cash flows and recognised brand names. The fund might also participate in large-scale start-ups based on proven technologies and models, such as new mobile telecoms operations, but will not undertake typical venture investments in new-technology-based firms. “Flexibility is key in these underdeveloped markets,” says Cavusoglu. “Also, with so little local competition, there is no need to specialise to differentiate ourselves from other funds.”

Although more than 90 per cent of DIP will be deployed in Turkey, Egypt and the Lebanon, where the fund’s managers have the most expertise and perceive there to be most opportunities, its remit also permits a limited amount of investment in other Middle Eastern and North African markets.

DIP will normally invest between $5 million and $10 million per company. However, the fund offers participants substantial co-investment rights. Cavusoglu says that Turkish and Gulf-based investors, in particular, are thirsty for co-investment opportunities and predicted that DIP could therefore have the capacity to lead deals involving investments of as much as $50 million per project.

The DIP prospectus is due to print during August. DCM has undertaken an extensive premarketing exercise for the fund, which will be structured as a Cayman Islands LP, and so far has received indications of interest for more than half the target amount, split roughly 50/50 between Gulf and US or European institutions.