“We’re seeing new interest on the technology side… with a view to invest in sectors like edutech, healthtech, agritech and fintech.”
Kamar Jaffer is a counsel in the Allen & Overy Funds and Asset Management Group where she is also a member of the Diversity and Inclusion Committee.
The pandemic made 2020 a difficult year for those looking to fundraise and establish investment funds, but more recent signs have shown a positive shift. Fund managers have had to adjust by taking a more deal-by-deal approach when convincing investors to commit. The MENA region has seen investments grow particularly in technology across all sectors. “We’re seeing new interest on the technology side… with a view to invest in sectors like edutech, healthtech, agritech and fintech.”
Sovereign wealth funds continue to play major roles in allocating funds with an aim to diversify the economy both regionally and internationally. US SPACs have received greater investments from MENA region funds. Managers in the Middle East are now looking to raise their own SPACs in the region.
LISTEN AND SUBSCRIBE
SPEAKER
Kamar Jaffer
Counsel
Allen & Overy
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darsie: (00:07)
Hello everyone, and welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum and networking platform at the intersection of finance, technology, and public policy. SALT Talks are a digital interview series that we launched in 2020, with leading investors, creators, and thinkers, and our goal on these SALT Talks is the same as our goal at our SALT conference series, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Kamar Jaffer as our guest on SALT Talks, moderated by our good friend, Huda Al Lawati , who joined us at our SALT Abu Dhabi 2019 conference. And we're looking forward to having both of these speakers today, join us at our next SALT Middle East conference, hopefully at the end of 2021.
John Darsie: (01:00)
But a little more about Kamar. Kamar is the counsel in Allen & Overy's Middle East Funds and Asset Management Group, with 15 years of experience in the business. She helps clients structure and establish investment funds, including Shariah-compliant funds. Prior to joining A&O, Kamar was the head of legal Mena and Turkey at PineBridge Investments, a global multi-asset class manager providing cross-jurisdictional legal advice on private equity, real estate, and distribution of financial products.
John Darsie: (01:30)
Prior to moving to the Middle East, Kamar worked for a global law firm in London. Kamar is passionate about emerging markets and, with senior industry executives, has led podcasts exploring reinvigorating the Mena economy by focusing on mid-caps and SMEs, and the role of private equity in emerging markets. She's also edited publications, including Euromoney's Investing in Emerging and Frontier Markets. Kamar is a member of A&O's Middle East Diversity and Inclusion Committee, and leads the gender initiative at the firm.
John Darsie: (02:01)
And, as I mentioned, hosting today's interview is Huda Al Lawati . Huda's career has spanned 18 years in private equity and investments across emerging markets. As partner at Gateway Partners Group, she is a member of the investment committee and leads deal origination, execution, and portfolio management in the Middle East and Africa regions for the firm. Prior to Gateway, Ms. Al Lawati was the chief investment officer for Savola group, one of the largest publicly listed strategic investment holding groups for food and retail businesses in the Middle East and North Africa. She's also currently a board member at Tim Horton's Middle East and Gateway Delta Development Holdings in Africa, and served on the boards of Pan Retail Company, Herfi Al Kabir, Savola Foods Company, SMG, The Entertainer, and Kudu. Among many other accomplishments, she holds a Bachelor of Science degree in neuroscience and a Bachelor of Arts degree in business economics from Brown University in the beautiful town of Providence, Rhode Island.
John Darsie: (03:02)
So, thank you both for joining us today. Huda, I'll turn it over to you for the interview.
Huda Al Lawati: (03:06)
Perfect. Thank you so much, John. And thank you SALT for having us. Thanks Kamar for joining. I thought it's a very good time for us to discuss fundraising in the Middle East region and, more broadly, the emerging markets. Kamar is very well placed as a counsel for funds and asset management to talk to us about this.
Huda Al Lawati: (03:28)
You talked a little bit about what she does. I would ask her to elaborate just a little bit more to set the stage for her place, in terms of fundraising. She sees money coming in and out of the region, and then we'll go into the discussing fundraising in more detail.
Kamar Jaffer: (03:42)
Thank you, Huda. Thank you very much for having me on the SALT Talk. So, my focus is on structuring and establishing funds to raise capital for investments, as well as representing some of the institutional investors in this region that are investing into funds globally. So, my clients include sovereign wealth funds, family offices, and other institutional investors, and also private managers that are establishing funds in this part of the world.
Huda Al Lawati: (04:15)
Perfect. Thank you for that. So Kamar, you basically help people like me who want to do deals or raise money, actually turn that into reality.
Kamar Jaffer: (04:23)
That's right.
Huda Al Lawati: (04:24)
And in that context, if we just look at the big picture over the last 12 months, in a very eventful COVID year that we've had, how do you see the environment, the fundraising environment, whether it's from a manager perspective or a investor perspective?
Kamar Jaffer: (04:40)
So, I'd say that generally for the Middle East, fundraising has been challenging in 2020. We've seen it pause initially when COVID-19 hit in the initial months, March, April, May, and then we start to see much more of a positive outlook on fundraising, as managers are structuring and establishing funds and going to markets and closing their funds as well. What we've seen last year, is that managers and investors transition to remote worlds. I've been holding, so we have been doing their due diligence together remotely, and that's been very positive. So, there's been engagement from both sides, and we've managers trying to do this in a very efficient way.
Kamar Jaffer: (05:27)
We've also seen that, the trend we've been seeing, which is very aligned with what we're seeing internationally, is that investors continue to allocate so very well-known and established managers, as well as ones that they have preexisting relationships with. So they tend to re-up with the managers they know. We're seen a lot more difficulty for first time or emerging managers that are looking to start their first fund, for example. And that's where the challenge is.
Huda Al Lawati: (06:02)
That's very much in line with what we've seen as well. Do you see that changing? Or, in the recent months, or do you think that's going to continue being the case, so long as we can't physically travel and do due diligence on new, or the investors can't do due diligence on new names?
Kamar Jaffer: (06:20)
I think that managers are trying to be as reactive as they can to investors' needs. And I think that they're looking at alternative models, as well, to raise capital. So, if they can't trace it by raising a blind pool fund, they look at, for example, a deal-by-deal structure, or a pledge fund structure, in order to get to, for example, in a deal-by-deal structure, they'll have a pre-identified investment, and they'll look to get their investors comfortable with the investment, get them to invest, and build their track record in that way, by making those sort of deal-by-deal structures, and then with a view to perhaps seeding their first fund. So, I think that we're seeing that managers are trying to adapt to the current markets.
Huda Al Lawati: (07:03)
Great. And on those sort of deal-by-deal situations, are the economics similar? Is it very much per situation? How does it work?
Kamar Jaffer: (07:14)
Yeah. So on the deal-by-deal structures, I think that there isn't a very set market terms, like there is on the fence lines. So, I think we see that managers do this in different ways, and it depends on whether they've had the track record, whether they've done this before, whether investors know them, and whether they've got a pipeline as well. So, I think there are many factors that come into play, but we do see, for example, a closing fee that gets put in place. And of course, the carry, those are typical structures we still see in those deals. And then, after that, the range of what those are, will differ depending on the manager.
Huda Al Lawati: (07:56)
So, going away from the how and the investment structures, getting into what, in terms o?f the industry verticals or the investment strategies that you see having the most traction, where would that be in your view either in the Middle East or broadly, emerging markets?
Kamar Jaffer: (08:13)
Sure. So, what we've been seeing is that the managers that are established, that have a track record, they tend to be able to raise their successive funds, and those can be in PE, in private equity, credit, they can be in venture capital, and the list goes on. But I think where we're seeing a lot of new sort of interest is, for example, on the technology sites. So we're seeing a lot of interest in VC, in tech, with a view to investing in sectors like edu-tech, healthcare, so healtht-ech, agri-tech, FinTech, all of those are attracting a lot of attention in the region.
Huda Al Lawati: (08:59)
Now, you talk about attracting attention, which takes us now to the who. And I'm just trying to sort of understand where that interest is coming from? Is that, you have families, sovereigns, international, local, where is the interest today? Who are the active pockets, let's say?
Kamar Jaffer: (09:19)
So, I think sovereign wealth funds continue to allocate, so they have continued to allocate, both regionally and internationally, to funds, and they continue to do so. In particular, to help diversify the economy, and that continues. Family offices also continue to invest, both regionally and globally. And again, they're trying to diversify their businesses away from their traditional areas of focus.
Kamar Jaffer: (09:49)
We're also seeing, we do see some interest from U.S. and European players that have invested with managers in the region, and continue to do so, and those are the ones that have had experience of investing in the Middle East or emerging markets. And they continue to invest, particularly with managers that they know. And then DFIs, I think in particular, are continuing to invest in markets such as Egypt and Africa, to sort of help support their agenda as well.
Huda Al Lawati: (10:24)
And how about outward investment from the Middle East?
Kamar Jaffer: (10:28)
So, outward investment, we're seeing a lot of interest in U.S., in Europe. So those are the big fundraising markets at the moment. And I think that the sectors that we see a lot of interest in, are credit. So, special situations, dislocation funds, have attracted capital from the region, and we're also seeing this across sectors. So, it doesn't necessarily need to be just a credit fund, it will be a specific industry or area that they're allocating to. And what's interesting here, is that we're seeing [inaudible 00:11:04] sovereign investors that want to deploy capital very quickly in specific industries or strategies. They invest through separate managed accounts, so SMAs, with managers, which means that they give a big ticket slice to the manager to invest, and it's effectively investing as a fund of one, let's say, in two specific areas.
Huda Al Lawati: (11:28)
And just parking on the sovereigns for a few minutes, we've seen the like of [inaudible 00:11:36] talk about doubling AUM. We've seen pockets such as Jeddah and capitalists come out and say that they're going to support the local managers and develop the industry further. Have you seen that translate into activity? Have you seen that translate into allocation? And what, if any impact does that have on the terms that managers have to sign up to when they bring in pockets like that?
Kamar Jaffer: (12:02)
So I think we're seeing these seed funds, which is a relatively unusual feature, I think, which is parts of our region, becoming very active. I think that that is great for managers because they have that support system in play, and those seed funds are very active in promoting their ecosystem, whether it be in Saudi, in the UAE, or in Bahrain or elsewhere. And I think that they invest, but they will basically allocate, but also have other investors join. And so, the negotiation with the manager will not necessarily just be with a seed investor, it will also need to cater to other investors that are joining the fund. So, it will have to be on the basis of market terms.
Huda Al Lawati: (12:51)
And is there a Domo salary requirement associated with all of them ,or some of them? Are there any localization requirements that this comes with?
Kamar Jaffer: (13:02)
So I think, as you know, [inaudible 00:13:04] we've seen a historically, Cayman Islands being the preferred domicile for funds in the region. And what we have seen in recent years is that the financial centers in the region are attracting managers because they're closer to home. So they have their teams locally based in the region, and those continue to attract those managers. But based on common law, international standards, so they provide comfort and, at the same time, they allow 100% foreign ownership of managers, so they can set up their funds and have the ability to adapt the terms of their fund documents. So I think it's very similar to what you would have in the Cayman Islands, in terms of legal regulatory framework, in a way. And I think that those jurisdictions will continued to attract managers, and that will also enable them to continue to raise capital from the region.
Huda Al Lawati: (14:05)
And when you talk to international pockets, and talking about these jurisdictions and the new jurisdiction, do you see resistance? Are people wary of the lack of history, lack of precedence?
Kamar Jaffer: (14:19)
So I think we do see international investors looking at the region and investing in the region, but we also see that, at times, there may be some investors that are very used to investing in other parts of the world, and so they prefer to use their domiciles. So we do establish, for example, a fund, named fund, let's say, in the region, with a parallel fund in Luxembourg to cater for European investors. So, we do structure in such a way to be able to attract different types of investors, depending on their requirements. And I think this is driven by different factors, including tax, as well.
Huda Al Lawati: (14:58)
And talk about catering to... So, tax, or other reasons, people being used to domiciles, another pocket of investors that I know I asked you a lot of questions about and pick your brains on it, the Shariah investors. Do you think that that's a pocket that's being tapped enough? Or successfully, unsuccessfully? Do you see it as an impediment? Do you see it as an opportunity? How do you view that?
Kamar Jaffer: (15:27)
So I would say that most of the funds, we, about 50% of the funds we work on are Shariah-compliant funds in the region, or structures to tap into those investors. And I think it is an opportunity, definitely, in terms of tapping into those investors. I think it's a challenge in terms of understanding the requirements. So, Shariah compliance, I would say, is an art, not a science. So many of the investors will have different requirements, depending on their Shariah board. And the Shariah board also has different views of what Shariah-compliance is, which evolve over time. So, certain investors will only invest in fully Shariah-compliant funds, and others may be comfortable at the other end of the spectrum, with excuse rights, whereby they will invest in a conventional fund, but they will be excused from investments that are not Shariah-compliant.
Kamar Jaffer: (16:31)
And then there are some other options in between. So we do see some investors requiring parallel funds to be set up, which is some of the structures we've been discussing, or using a debt financing instrument, so financing instrument, to access the conventional fund, to be one step removed from the conventional fund effectively, to invest into that. So I think overall, there are different ways of approaching Shariah investors and it's important to really understand what their requirements are.
Huda Al Lawati: (17:06)
Do you see that getting streamlined as more, as there is more interest and more activity in this Shariah pocket? Or do you think people will continue to have their own requirements?
Kamar Jaffer: (17:18)
I think there will continue to be their own requirements because depending on the investors, their jurisdictions, across the emerging markets, not just the Middle East, but also Asia, they will all have their own specific requirements, and the Shariah scholars who advise the investors as well, have evolving views of Shariah law, over time, that really will also impact the restructuring too.
Huda Al Lawati: (17:48)
Zeroing in on the terms, whether it's a Sheriah-compliant fund or a conventional fund, have you seen specific fund terms evolve over the last 12 months?
Kamar Jaffer: (18:00)
Yes. I mean, firstly, the time to close has extended. So we've seen that extend beyond the typical 12 months. So you see that go to 18, 24 months in some cases. So that's, and we've seen sort of a lot of discussion between managers and investors as to whether they hardwire the period in, whether they build in flexibility to get investor consent, to extend it, and all of those types of things.
Kamar Jaffer: (18:28)
We're also seeing a lot of discussion around the investment mandates. So managers are getting back to their investors and trying to negotiate to have a broader investment mandate, in order to capitalize on opportunities, or to invest across the capital structure of companies. So that's another area that we're seeing movement on.
Kamar Jaffer: (18:47)
And then there's also the investment period that may be longer, because it may take more time to exit the current markets. And that has also knock-on effects, because you may have to look at the definition of [inaudible 00:18:59] investments, if you want to continue to invest in your portfolio companies, and there are restrictions and terms around that. And so just looking at what that means.
Kamar Jaffer: (19:10)
And then I think that, generally, on the economic terms, those tend to be fairly in line with where we were before, and those continue to be, sort of, not necessarily very strongly effected, especially for established managers, as to what they were before COVID-19.
Huda Al Lawati: (19:34)
So size matters there more? Or less?
Kamar Jaffer: (19:37)
They're still very long [crosstalk 00:19:41]
Huda Al Lawati: (19:41)
It's been very long. [crosstalk 00:19:42] Painful, right?
Kamar Jaffer: (19:43)
Yes.
Huda Al Lawati: (19:43)
Talk to me about structures. Another area that has seen a lot of activity and actually has boomed, is SPACs.
Kamar Jaffer: (19:54)
Yes.
Huda Al Lawati: (19:55)
Sitting here in the Middle East, what do you see?
Kamar Jaffer: (19:59)
So I think we are definitely seeing a lot of interest in Special Purpose Acquisition vehicles, or Companies. So SPACs. In the U.S., as you know, the numbers of SPACs that have come to the market last year were significant. I mean, there were over 240, I think, SPACs, raising over $80 billion, are some of the numbers that I've read. And I think that has attracted investor interest in the region. And we are seeing some investors who are looking to invest in SPACs. I think what has brought a lot more investor familiarity are some of the players that have some of the high profile names of business leaders, as well as PE sponsors that have been backing the SPACs. And I think that is also sort of attracting a lot more interest, and we're seeing a multitude of structures, as you've said. So, some would be sponsored individually, and others through the private equity firms as well.
Huda Al Lawati: (21:08)
And in terms of SPACs, you mentioned managers and private equity players being involved in that, is that typically done as private equity players doing a new activity? Or is that done through funds? Or, is the fund the SPAC sponsor? Or is the private equity manager we've seen individuals do it, or is it a mix?
Kamar Jaffer: (21:31)
I think I would say it's a mix. So, I think I would say that what we're seeing on the SPAC side, is that the team is key, in terms of the fundraising. And that's one of the key aspects, because they have to identify the target within 24 months. So the question is whether that team has the pipeline to be able to use them.
Huda Al Lawati: (21:59)
So if I were talking to you from the point of view, and I'm going to ask you this from a few perspectives, if I talk to you from the perspective of an international investor, looking to put money here, what would be the things that you would tell me to focus on?
Kamar Jaffer: (22:17)
So I think it's similar to every other market in the world, right? So it's basically, it's the team, the managers' performance, on other funds, how it's dealt with sort of crises, let's say, in previous times, so how they've dealt with the financial crisis every time, how they've dealt with COVID. How they've managed at portfolio companies. I think there will be a lot focus on the existing portfolio investments and how they stand, and how managers are supporting those. And also looking at the pipeline, trying to understand how the managers are actually continuing to secure a pipeline across the board range of geographies, and able to actually diligence those and how they put process in place to assist them on all of that.
Huda Al Lawati: (23:08)
And if I flip that and ask you from the point of view of somebody who's raising money, as the manager, what would your advice be?
Kamar Jaffer: (23:14)
So I think, from a manager's perspective, I think the importance is really to highlight those success stories, like basically the transition to the virtual world, the support that has been provided to the portfolio companies, where the portfolio companies are 12 months later. I think it's all about continuing communication and engagement with investors. So, keeping them up to date to be more transparent. And I think that, and just the future pipeline and the dialogue that they have with those management teams as well, given there are still travel restrictions in place.
Huda Al Lawati: (23:59)
And you touched on portfolio management and the focus on that from the investors' side. And you also touched on potentially longer holding periods because of inability to exit. Have you seen continuation funds or people looking to manage the end of life for funds during this period?
Kamar Jaffer: (24:24)
So, yes, we are talking to players that are looking at continuation funds, for us it's where they see opportunity for growth. And so they would look to transfer them into a fund and either roll over their existing investors and bring on new investors to those. So I think that there are those discussions going on. And so I think it's really a question of the underlying targets and the opportunities there, as to whether it's successful or not.
Huda Al Lawati: (24:55)
Are they difficult conversations?
Kamar Jaffer: (24:58)
I think it's a question also of just being able to manage the existing investors on one side, getting the necessary approvals and consent, and also just managing the new investors. So there are the conflicts of interest provisions that are in fund documents and just understanding how to navigate all of those issues. Valuation as well, making sure that the valuation is on the button made by an independent third party to be able to provide comfort when the asset gets transferred to the continuation [inaudible 00:25:32] So I think all of those issues have to be properly, sort of, addressed.
Huda Al Lawati: (25:39)
Right. Good. But thank you so much Kamar, for your views. I think that gives a great overview of what's happening and what you're seeing and really appreciate your time and sharing your knowledge.
Kamar Jaffer: (25:50)
Thank you [crosstalk 00:25:51]
John Darsie: (25:53)
Thank you Kamar, and thank you Huda for joining us. It's always great to touch base with our friends in the Middle East. We haven't gotten to see enough of your faces, obviously during COVID, but look forward to hopefully getting over to see you guys soon in beautiful Dubai, and resuming our conference series, as I mentioned in late 2021. So thank you both for participating today in SALT Talks.
Huda Al Lawati: (26:15)
Thank you.
Kamar Jaffer: (26:15)
Thank you.
John Darsie: (26:18)
Thank you everybody who joined us today on SALT Talks with Huda Al Lawati and Kamar Jaffer. Just a reminder, if you missed any part of this episode or any of our previous episodes, and we've had plenty of guests hailing from the Middle East, a region that we're very familiar with and that we like a great deal, you can access all those SALT Talks salt.org\talks, and you can also sign up for all of our future talks there, if you're going to participate in these episodes live.
John Darsie: (26:44)
And just a reminder, please follow us on our YouTube channel where SALT Tube is the name of our YouTube channel. We're also on Twitter, which is where we're most active at, @SALTconference. We're also on Facebook. We're on LinkedIn, we're on Instagram as well. So please follow us there, and please spread the word about SALT Talks, we love growing our community, especially in new places, which we've done a lot more in the Middle East over the last few years. So,, love growing our community there. And on behalf of the entire SALT team and our guests today, this is John Darsie signing off for today from SALT Talks. We hope to see you back here soon.