Posts Tagged “Stephen Murphy”

Spotlight Series: Stephen Murphy, Citadel Capital on the MENA region.

November 22, 2020

Stephen Murphy, Managing Director, Citadel Capital participated in and won the Quickfire Showcase.  In an interview for the Spotlight Series, Stephen explained the attractions of the MENA region, amongst them its limited local competition.

Post Under: Africa

“Dry powder” and changing LP attitudes

October 17, 2020

In two very interesting presentations to open the LP summit at SuperReturn Middle East in Abu Dhabi this year, both Stephen Murphy of Citadel Capital and Mark O’Hare of Prequin looked at the shape of the MENA region’s PE market from the peaks of 2007, through the financial crisis to now.

Stephen Murphy prefaced his presentation by clarifying why he as a GP should be addressing a summit of LPs.  Citadel adopt the Hedge Fund model; they always invest in their own funds.   His mission was to get to the root of the “dry powder” debate.  General report sets it at $28 billion but what is that made up of and what is the real amount available for investment right now?  A recent report from Booz & Capital set the figure at a more modest $11 billion.  By applying some rigor Stephen arrived at a figure of $7 billion.

Another question troubling Stephen was why does only 10% of the capital invested in Emerging Markets find its way to the MENA region.  Could it be that not all the levers for value growth in place and there isn’t a clear exit strategy.  Local stock markets tend not to perform as well as their international counterparts.  Added to that is the competition from sovereign wealth funds.

An issue for International LPs could be the quality and expertise of some of the local senior management talent.  This is where the recent crisis could benefit the region.  The available talent pool for experienced and seasoned senior executives just got larger and MENA is a real and attractive option for many.

But the biggest question of all is “what will the return on existing investments be?”

Mark O’Hare looked at the changing LP attitudes and behaviours.  He started with a summary overview of private equity fundraising

1. Deals and exits are recovering
2. LPs “sticking with the programme”
3. GPs in compelling  propositions are succeeding

If you compare the private equity asset class with the available investment options on the public markets, private equity will outperform over a 5 year period.  In shorter time spans, the public market has more to offer, but approval ratings for private equity are still high amongst investors.

Between 2007 and now, the % for LPs expectations being exceeded has reduced from 24 to 9 but % meeting expectations remained reasonably static from 74 to 70.  What has changed in the expected return.  In 2007, public markets + 2% was considered acceptable, now its > 4%.

Turning to re-ups, only 13% of LPs will be reinvesting with all their managers, while 85% plan to stay with some existing managers.  When questioned about where he thought the 85% planned to migrate their capital not recommitted, Mark gave his personal view that LPs were reducing the spread of their GP pool not their capital invested in private equity.

The funds of choice with LPs are mid-market buyouts and distressed private equity but Mark’s believes that the mega funds like Blackstone are on the rise again.

And finally, Mark polled the LPs audience about their view on the emerging trend of direct investment by LPs; will it increase or fade out?  The jury’s out I’m afraid!

In two very interesting presentations to open the LP summit at SuperReturn Middle East in Abu Dhabi this year, both Stephen Murphy of Citadel Capital and Mark O’Hare of Prequin looked at the shape of the MENA region’s PE market from the peaks of 2007, through the financial crisis to now.

Stephen Murphy prefaced his presentation by clarifying why he as a GP should be addressing a summit of LPs.  Citadel adopt the Hedge Fund model; they always invest in their own funds.   His mission was to get to the root of the “dry powder” debate.  General report sets it at $28 billion but what is that made up of and what is the real amount available for investment right now?  A recent report from Booz & Capital set the figure at a more modest $11 billion.  By applying some rigor Stephen arrived at a figure of $7 billion.

Another question troubling Stephen was why does only 10% of the capital invested in Emerging Markets find its way to the MENA region.  Could it be that not all the levers for value growth in place and there isn’t a clear exit strategy.  Local stock markets tend not to perform as well as their international counterparts.  Added to that is the competition from sovereign wealth funds.

An issue for International LPs could be the quality and expertise of some of the local senior management talent.  This is where the recent crisis could benefit the region. The available talent pool for experienced and seasoned senior executives just got larger and MENA is a real and attractive option for many.

But the biggest question of all is “what will the return on existing investments be?”

Mark O’Hare looked at the changing LP attitudes and behaviours. He started with a summary overview of private equity fundraising

i. Deals and exits are recovering

ii. LPs “sticking with the programme”

iii. GPs in compelling propositions are succeeding

If you compare the private equity asset class with the available investment options on the public markets, private equity will outperform over a 5 year period. In shorter time spans, the public market has more to offer, but approval ratings for private equity are still high amongst investors.

Between 2007 and now, the % for LPs expectations being exceeded has reduced from 24 to 9 but % meeting expectations remained reasonably static from 74 to 70. What has changed in the expected return. In 2007, public markets + 2% was considered acceptable, now its > 4%.

Turning to re-ups, only 13% of LPs will be reinvesting with all their managers, while 85% plan to stay with some existing managers. When questioned about where he thought the 85% planned to migrate their capital not recommitted, Mark gave his personal view that LPs were reducing the spread of their GP pool not their capital invested in private equity.

The funds of choice with LPs are mid-market buyouts and distressed private equity but Mark’s believes that the mega funds like Blackstone are on the rise again.

And finally, Mark polled the LPs audience about their view on the emerging trend of direct investment by LPs; will it increase or fade out? The jury’s out I’m afraid!

Post Under: Middle East


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