Caixin Weekly | A Long Road to Fundraising in the Middle East (AI Translation)

财新周刊｜中东募资路长

Chinese venture capital (VC) and private equity (PE) firms have been increasingly turning their attention to the Middle East as a new frontier for fundraising amidst challenges in raising U.S. dollar funds and exiting through overseas listings. The Middle East, known for its vast sovereign wealth funds, has become an attractive destination for these firms looking to diversify their fundraising efforts beyond traditional markets [para. 1]. Despite the allure of the region's wealth, Chinese VC/PE professionals often find it challenging to secure investments due to the cautious approach of Middle Eastern Limited Partners (LPs), who prefer reciprocal investments and are wary of speculative ventures following significant losses in high-profile investments like Japan's SoftBank Vision Fund [para. 1].

The Middle East's economic landscape is undergoing a transformation, with countries seeking to diversify away from oil and gas dependency towards sectors like new energy vehicles, which Chinese VC/PE firms find appealing. This shift aligns with China's "Belt and Road" initiative, fostering closer ties between China and the Middle East. Bilateral trade is growing, with currency cooperation hinting at the potential rise of "petro-yuan," which could benefit the Chinese capital market significantly [para. 2].

Despite these opportunities, successful fundraising in the region remains difficult. Many Middle Eastern LPs prefer managing their funds directly rather than investing in external fund pools, posing a challenge for Chinese firms accustomed to different investment practices [para. 3]. Moreover, Islamic finance principles further complicate matters for those unfamiliar with its prohibitions on interest payments and speculative investments [para. 4].

Middle Eastern investors are conservative by nature, often focusing on familiar regions and sectors. They also emphasize direct investment over fund contributions, particularly in projects that can simultaneously take off in both China and the Middle East. This investment strategy aims not only at financial returns but also at fostering local economic growth and development [para. 5][para. 6].

For Chinese VC/PE firms looking to succeed in the Middle East, building long-term relationships rather than focusing solely on immediate fundraising is crucial. Understanding Saudi culture and demonstrating a track record of fulfilling promises or achieving successful exits can significantly enhance their appeal to potential investors in the region [para. 7]. Additionally, adapting to Islamic finance principles and recognizing the strategic priorities of Middle Eastern LPs—such as investing in sectors aligned with their aspirations for industrial diversification—is essential for navigating this complex investment landscape effectively [para. 8].

In contrast to American and European institutions scaling back their presence in China, major Middle Eastern organizations are increasing their investments within the country. Sovereign wealth funds from places like Qatar and Abu Dhabi have established offices in major Chinese cities and are engaging more directly with local enterprises. These direct investments reflect a broader strategy of promoting economic cooperation between China and the Middle East beyond mere financial transactions [para. 9].

Overall, while challenges abound for Chinese VC/PE firms attempting to raise funds in the Middle East—ranging from cultural differences to preferences for direct investment—the region represents a significant opportunity for those willing to invest time into understanding its unique characteristics and building lasting partnerships based on mutual trust and shared goals [para. 1][para. 2][para. 3][para. 4][para. 5][para. 6][para. 7][para. 8][para. 9].