Private Equity talk for aspiring fund managers

[Music] thanks everyone for being here and thanks hub71 for uh inviting me to do this session um it is bit of a challenge I was asked to talk about the mechanics of setting up a private Equity Fund in 15 minutes which I'm not going to be able to do right I'm going to give you a high level um idea of three different baskets one is sort of the commercial side of what you want to do when you set up a private Equity Fund the second is more the practical aspects of doing that and the third is a bit more of the soft side of just doing something entrepreneurial the introduction was lovely I want to say a lot of what um the achievements that were mentioned in the introduction were uh done while I was at uh different places in my uh entrepreneurial um uh uh recent two-year history uh there's a lot more of planning and basing ourselves because that's not not been as long so I'm early in my journey but that also means that I can share with you the pains because it's all very recent in my mind and not uh uh not too far off so starting with um you know setting up a fund and deciding to set up a private Equity Fund I think the the starting point really has to be that there is something that you feel there's a strategy There's an opportunity in the market that you understand well and that your experience and capability is uh is appropriate to leverage that opportunity and make investments and create returns um I find I the reason I mentioned this very obvious point is that you do get people who sort of think well private Equity is a good way of making money I'm just going to set up a fund and make some Investments and they don't necess and I've been asked by people right they they will necessarily have a specific strategy that they're passionate about that might work in the short term but in the long term you really need to be very clear on what is the investment strategy that you think you can have then you have to think about structuring data more from a commercial perspective what do I mean by that you need to think about the structure of the fund you need to think where you want to be based you want to think about the size of the fund the number of Investments you you'll make what kind of a team you need and they're all connected to each other but this is your test of the commercial viability and feasibility of a strategy and what this means is that you if you think you're going to make $1 million Investments you're not going to raise a $100 million fund because that's 100 investments in a fund that is not something you want to do you also don't want to raise a $20 million fund if you want to do $10 million these because again you'll have two investments in a fund which does not make sense now just to pause there I'm talking about a diversified blind pool fund of Investments there are other ways of doing private Equity as well uh common structures that we've seen come up particularly in this region are um deal by deal so you have a specific investment and you invest you raise money for that specific investment and you manage that but for the most part and what I have done and what I'm going to talk about mostly is the sort of uh aggregated pool of uh uh Capital to invest in various uh Investments once you've determined what size of Investments you're going to make and what signs of fund you have you then need to see that you can manage a team that can deliver on that this is your commercial viability meaning that the a fund will and and I'm going to I was asked to keep it basic so I will I apologize for people who understand this but obviously a fund was is going to earn money in two ways one the management fee that they charge on the money they manage and the profit they take from the returns they give to investors typically that's what we call 2 and 20 2% management fee and 20% of the profits if you have um made a profit and subject to some hurdles now if you manage a fund of let's say 100 million and you get 2 million per anom but you the strategy is a deep Tech strategy where you need a lot of R&D people and a lot of researchers inhouse and it's very um let's say intensive in that sense and you're not unable to get people in any different way and your cost Bas is 4 million that's not really a viable strategy you need to go back to the drawing board so this part of triangulating your fund size your uh profitability and the opportunity size is probably the most important part of deciding what you want to do and to formulate a strategy and it's the concept stage um and from there on you have to start thinking about people and team and this is probably the hardest part of any Journey any entrepreneurial Journey um and I think there you are you whether it's you're a single founder or you have founders with you you really do have to think about the construct of your team and how much it's going to cost you where where you're going to get people to join you from what culture you're going to have uh how they're going to be able to contribute how long they're going to stay with you and are they the right people to uh go with you through a journey that is you know very very difficult because this is not a product or a service which you're making and selling to a ma you know to a lot of people online offline this is basically you trying to convince people who manage money that they should give some of that money to you to manage it on their behalf so requires a lot of credibility which you bring with your own track record as well as your team and it requires a lot of trust I think that's something that is a big challenge for anyone starting a private Equity Fund I you know I I've been doing Investments for 20 years but even today there's a whole host of investors that will say we don't invest in firsttime managers because in your first fund you are a firsttime manager your personal track record is does not take off the box for a lot of these investors as a track record so that's another thing you have to think about very hard on the commercial side which is your fundraising strategies are there enough people who will support firsttime managers in this strategy are there enough people who will Who will back you based on your track record do you have the relationships do you have the networks do you have the credibility and one thing that I think is extremely helpful at that stage is as you build up your idea or your fund strategy is to also have a very clear pipeline um this again requires a lot of Network and and uh credibility with the market but it is much easier to raise money even for a blindf of capital if you can say well these are the four or five Investments that I'm currently looking at and people have to have the uh belief that you can actually secure those opportunities when you talk you can't talk about people's companies without talking to them they have to have belief that you can raise money so there's a lot of chicken and egg that you have to manage um but that's all sort of going towards building a strong commercial basis which is that you know your fund sizing makes sense your strategy makes sense you have a uh a strategy and a pipeline that you want to deploy into and you have the right people then you move on to the Practical side of things I'm going to stop here on the commercial thing just because it's a it's a lot of things are there any questions on the commercial side of setting up a private Equity Fund from anyone anything all right so moving on to the practice iCal side and we're in adgm my fund is registered in AGM so I'll tell you that that really is one of the first things you have to decide where does your fund have be based is it going to be a in it has to be a regulated well it is preferably a regulated fund because that means that investors are more comfortable setting investing money with you but there are a lot of options globally in terms of where you can set up whether it's adgm DFC Cayman BV there's a lot of different options and you have to really think what is the best option for you Visa your investors Visa your investe companies the ecosystem for us this was a very attractive jurisdiction first of all you know we're based in the UAE we invest in the GCC but even beyond that the ecosystem that was provided by the adgm for us was very attractive we had a lot of uh support we had access to the uh Authority and the regulators and we were really felt that it was a very uh you know Wellman journey by the staff here to help a first-time manager who you know you could be very experienced in a lot of things to do but fund management and fund um regulation and fund setup are very uh specific things that you have to uh you need help on uh you saw you have to start thinking about who you need to bring on board usually you'll have an adviser who will help you with the application with the regulator you need lawyers I'm looking at an ex- colleague of mine who's a lawyer there not many lawyers that are you'll find a lot of corporate lawyers they're much smaller group of lawyers who understand funds law it's very important that you find those lawyers and engage them because fund terms are very specific and very nuanced just because you've been deals doing deals for 20 years I'll say that about myself doesn't mean you understand fund economics so people who understand that are very very important in the equation they are also expensive so uh you you need to build that cost in and you need to think about who is uh what your policies and procedure and uh systems are going to look like who your Auditors are going to be who your fun administrators is going to be so there's an incredible amount of uh service providers and stakeholders that come into play and you really want to be in a place where those are uh present they're active and they have experience I think in when it comes to the uh uh practical side of translating these things you know a lot of people will say well you know these are things that are desktop jobs they're really not you have to go out there whether it's the market study finding people interviewing people engaging with Regulators finding the right advisers you really have to be out there constantly meeting and networking with people to get this right and only then do you are you ready to now apply to become a fund and therefore it is quite a long journey and it is something that is that does require Capital as well what do I mean by that aside from raising money to to uh make investments and before doing that you really need working capital because you're not you know you're not making a widget in your garage when it comes to being an entrepreneur in the asset management industry you're managing other people's money the compliance side of things the regulatory side of things the the the just uh Integrity of uh information and fund flows all of that becomes extremely critical and you do need a certain level of capital to hire the right caliber of lawyers and advisers to be able to uh deliver on the the complexity that that you're getting yourself into I think the the the things that I wish people had told me when I started was just how long it takes to get out the gate because everything I've talked about now you're not even in the market right you're not even uh able to uh raise money or do Investments all you're doing is just preparing and I think you have to brace yourself for that it's a long period it's a difficult period and like most entrepreneurial Journeys you also need a bit of fool heartedness a bit of some blind spots and and a lot of optimism because I would say two years ago uh probably every one in three people were encouraging right at best I think for the most time people will tell you it's very difficult it's uh you're not g this strategy has not been done before or hasn't been successful before or that uh that region is difficult whatever it is you'll get a lot of different um ifs and butts so I think that it's good to test yourself and your conviction and commitment to what you're doing uh in any entrepreneur joury particularly if you're man and I keep saying this but if you're managing other people's money and I think that was probably a big realization as well in that really when you do something like private Equity or Venture and you look take on Capital to manage it's an incredible amount of responsibility as well and I think the the uh the the team building part of it is probably more um relevant for people who have who come from a pure investment background when you have a sort of I was a soul founder so that made it a little bit more difficult uh but I was lucky in that I was able to find my now partner Farah early on in my journey and she supported me a lot but I think that whether you're a soul founder or a couple of Founders you definitely definitely need to think about all the um areas that you need to address for us one of the big challenges was our finance and operations um you know when you think you come from an investment world you're thinking oh I need an analyst I need an associate I need somebody to do the deal I need to hire lowers but guess what you're spending money you're running a firm you're doing you getting licenses you need to think about that part really really hard now when you're in an ecosystem like adgm like other um fund uh ecosystem you will find people you can out source to people you can work with but unless you have your network and understand how people can help you on that front it could be very very difficult to focus your energies on what you're really signed up to do which is managing Investments so I think the the the mechanics uh of the fund from concept to then hiring advisors are all um in a back end they're sort of of away from the world and then you get into the finally launching the fund and you start facing the world I think that is where you need to bring in a lot of what you've been doing probably before that which is your investment your book building your um investment selling and you have to come up with your pitch and I don't mean necessarily the slides that formulate pitch like really your story your narrative your what is it that you're selling to the world and and you know it takes it takes several iterations even if you're very clear in your head on what your strategy is and how to communicate it you it's shocking to see yourself pitching things and finding that uh actually this is not an important factor this is a new thought you know making it more suent what I found very useful is pitching to friends and pitching a lot and and uh debating ideas and really cleaning out the the uh the strategy now uh different investors have different um things that they focus on and that goes back to your fundraising raising strategy are you raising from family offices are you raising from Sovereign wealth funds are you raising from other institutions are you raising from high n individuals these will all have a bearing on on how you approach it some people obviously if you're raising from a sovereign wealth or a pension you need to talk a lot more about process in addition to your strategy whereas with uh family offices is a lot more uh focused on you know where what is your pipeline and what uh you know uh what how we can co-invest some time so you really have to curate your uh cell to the audience that you're addressing I think the the the and and just sharing my experiences as you go along the way for us one of the the uh hard things when we started putting our pitch together was realizing that um whenever we spoke to a uh investors outside of a certain group of people who had we invest in the GCC and they're not everybody has has even People based here many of them are focus on investing outside because that's their mandate and they're only recently considering here so you have to talk to them about the region and the macros and you're not often talking about yourself I had a similar experience in my prior job with uh savola which is a listed company in Saudi where when we would talk to the rest of the world I would be talking more about the country and its uh return and risk profile than myself or my investments so I think you have your your pitch and your approach will change based on who your audience is so I think look I I'm I'm just looking at the time and I think that there is there is a lot more to say about these things but just moving on to the softer side of things I think it is really a very very big feat to say that you want to raise a private Equity Fund I think your advisor and your um uh relationship your service provider relationships play a much bigger part part than you can imagine but I think the the the sense of responsibility and the sense of knowing that you are managing money and that you have to deliver returns should always make you pause and check I I think you know like I said at the beginning if you come up with a strategy and you size it the commercials don't work don't just go out there and and start raising revisit it talk to people who've done it before and you'll find that there are ways to marry what you if you have done good research and it's really a good Market opportunity and you have what you know they call the right to win you will find a solution but do spend a lot of time on that because it doesn't get easier everything you said and you promised you set out to do you're accountable for it on a daily basis and so you know I wish everyone the best of luck in doing that and I think I would say it's been great for us to be based here in adgm and doing it but um there's a lot more to it than I can cover in 15 minutes thank you thanks