Year
2020
Country
Qatar
Language
English
Abstract
| Private equity (PE) in the Gulf Cooperation Council (GCC) region is a new asset class that has been informally structured and formalized towards the beginning of the last decade (early 2000). New private equity firms were established with more generic private equity funds established in 2002 and 2003. No publicly available private equity performance data are available that can shed light on how the GCC region compares to other regions in the world. This paper examines the performance of private equity general partners domiciled in the GCC over the period from 2004-2014. Our proprietary data covers a sample of 306 PE portfolio companies directly from general partners in the GCC. There are no mandatory requirements for PE companies to disclose any data relating to the performance of their investments. Within the sample of 306, 86 companies (28%) were Shariah compliant, with a total investment amount of US$814 million. We examine the relationship between the Internal Rate of Return (IRR) and a number of variables (investment ticket size, sector of investment, location of investment, investment-holding period, Shariah-compliant and conventional investments, and legal type of investments). Our results show that the Shariah compliant investments generate an average annual investment return of 1.13%. This compares unfavorably with the conventional portfolio of investments (220 companies with total investment amount of US$3.18 billion) with an average annual investment return of 2.04%. These findings show that Shariah compliant PE investments underperform their conventional counterparts by 0.91%. This finding is consistent with the findings relating to the underperformance of Islamic mutual funds’ when compared to the conventional mutual funds (Merdad, Hassan and Alhenawi, 2010). Furthermore, we analyse the performance of private equity General Partners (GPs) using the IRR, and our results show that only the investment holding period is statistically significant. We also compare the performance of the private equity portfolio to the S&P GCC Composite Total Return Index over the period of 2004-2014, and we find that the private equity portfolio underperformed the index by an average of 2.37% per annum. Overall, our findings show that private equity, as an asset class in the GCC region does not provide higher investment returns |
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