HSBC Private Equity Fund Middle East

This might seem a strange time to launch the first regional private equity fund from a major international bank. After all this fund represents a commitment to foreign direct investment at a time when other banks are running for cover. But what exactly is the fund looking to invest in?

'We have created a fund that is entirely focused on investment in existing, profitable, well established businesses that need to change direction, and want to move on to the next stage of their development,' explains director David Price.

'First, we are looking at management buy-out opportunities. This is where the national or expatriate management has the opportunity to buy their business from the owner, be they foreign or local. We can support the MBO team, provide capital, financial advice and cross border experience all backed by the worldwide network of HSBC.

'Secondly, the fund can offer expansion capital. For instance, in the next phase of a business expansion it may be that equity is needed rather than just debt. So HSBC would provide that equity requirement.

'We would help to arrange a suitable structure for such an investment. And we would typically seek to exit in four to five years' time. It could be that the investment would be self-liquidating with the cash flow of the business paying off our investment over time.

'Thirdly we are targeting pre-IPO investments. This is suitable for major groups which want to go public. We will invest to help them corporatize and introduce the best business practices to prepare the business for flotation.

'It can also help to have a name like HSBC as an initial investor, as this adds value to the investor base. However, we are an active minority investor with a strong focus on the financial side and with a clear strategy for taking the group public. Again we would typically exit a few years after the initial IPO.

'Finally, we are also interested in restructuring groups, for example to allow for the sale of non-core assets. People come to us and say, 'I have a mature business but it is non-core, to whom do I sell it?' We are an independent and neutral party that can purchase such a business confidentially and encourage the management to participate.'

However, Mr. Price explains that some sectors are off limits for the fund. It will not touch the financial sector, for example, due to the obvious clash of interest with HSBC. Real estate is also outside its purview.

'But we will look at everything else,' he says. 'Manufacturing, oil and gas, services, and retail'. Even technology, media and telecoms is not excluded, although few local private concerns meet the criteria of being established, profitable businesses.

The biggest investor in this unique $118 million private equity fund is not surprisingly HSBC itself with $33 million. But the balance is made up of a targeted investment community drawn from government investment institutions, regional financial institutions and large local families from across the GCC.

'We are particularly delighted that this spread of investors decided to come in,' says Mr. Price. 'It's a sign of the good long term prospects for this dynamic business, and the benefit that the HSBC regional presence adds to private equity'.

Interestingly Mr. Price and his business partner David Knights sold their own private equity business, Redwood Partners, to HSBC two years ago to create this new operation.

They are therefore not only bankers, but successful regional entrepreneurs in their own right having sold a business that they created from scratch to a huge international group. For most businessmen this is probably the best recommendation available.