The GCC investment revolution: Rishi Kapoor, Investcorp, on the region's burgeoning opportunities
Over recent years, and even more so in the foreseeable future, several forces are converging to position the GCC as one of the most attractive investment destinations worldwide.
Investcorp has been actively investing in the GCC region for nearly two decades. From its early days in 2007, the region has matured significantly, transforming from a traditional provider of capital to a burgeoning hub for global investments. At SuperReturn Middle East we spoke to the firm's Vice Chairman and CIO, Rishi Kapoor, about how Investcorp has positioned themselves within the GCC by playing the long game and what forces are shaping the GCC to become a global player in private market investments.
Transcript of interview
On how the GCC is positioned for growth and investment opportunities with ongiong macro developments
We’ve been investing as Investcorp in the GCC for almost two decades now, right? We started around 2007, and we've seen firsthand how the market has evolved and developed and matured frankly over that period. What is happening now over the course of the last few years in particular, but more importantly, looking ahead into the future is a few forces are all converging together to make the GCC as attractive, if not more attractive, a destination for investment of capital as it has historically been as a provider of capital.
So what are those forces? Number one, it's the vision of the younger generation of leadership. In all the GCC countries that is very focused on economic diversification, right? Driving a diversification of their underlying economies, away from over reliance on fossil fuels, into services, into technology, into healthcare, into tourism, logistics, all the things that you would naturally think of.
Number two, it's the shaping of the global supply chain, and it impacted obviously by geopolitics, the tariffs. The trade flows and so on. And the GCC sits in a very interesting part of the world where it can actually be a hub for those realigned global supply chains for trade flows. That's true.
Number three is the GCC has become a genuine leader in terms of adopting the digital transition that the rest of the world is gonna have to go through in particular, but not solely, exclusively focused on AI. I was. Told earlier by someone that in a recent conference of AI specialists from around the world, UAE was rated as the number four after US China, UK and UUAE.
That kind of tells you something. So clearly there is the development of a thriving business. Ecosystems now manifesting itself in the GCC, which creates ample opportunity. For firms like US, private capital, as well as sovereign capital to invest behind and deliver attractive returns, that in turn is supplemented by their focus on developing infrastructure.
On how opportunities in infrastructure are shaping the region
Number one, let's start with what we see clearly happening and not just happening. We are clearly, participating in it alongside others like us, which is the focus of the GC gov GCC government in developing and investing behind four pillars of regional infrastructure, digital right, supporting the deployment at scale of artificial intelligence, but also the digital transformation for government as well as corporates.
Number two, the energy transition, which is fundamental to, if you think about the foundation of GCC economies, the energy transition is fundamental to them. Number three, the transportation and logistics infrastructure, which also becomes the feedstock for the number four, which is the social infrastructure, right?
Education, hospitality, healthcare, other services. So now with those four elementary areas of infrastructure being. A prime focus for GCC governments, what is necessary to de-risk that journey and that drive is really the right balance of private participation alongside the governments, right? You want the government to be the primary catalyst behind the development of that infrastructure, but you don't want the government to crowd out private sector participation and that, balance is, on one hand somewhat tricky to achieve.
But on the other hand is it is essential, but also very impactful because private capital participation will not maintain discipline around capital allocation. It'll ensure that the broader economy is participating in the development of that infrastructure and the fruits that stem from it.
On how LPs are viewing local deployment compared to global diversification plans
Historically, the local capital markets in the region were simply not large enough or deep enough to absorb all of the surplus capital that was getting generated in the region, which is how in Masco started. If you recall, in the early eighties, our mission statement was to be a bridge of capital coming out of the region seeking attractive investment opportunities in the developed world in those days, north America and Western Europe.
Today we are a truly global platform. We are investing capital all the way from North America into Europe, into the Middle East, into India, into Asia, and we are raising capital from all over the world, including from the Middle East and including elsewhere to deploy into the Middle East. So it's both ways.
And that is. S symptomatic or emblematic of what is happening in the way that the mindset of the GCC investor base has shifted or evolved, rather. It's not an OR question, it's an question. GC. C investors are very focused on having a sustainable, long-term, attractive risk return profile in their investment portfolio.
Given the nature of the US capital market, not surprisingly, a vast majority of investment flows still grows into the us. We shouldn't be surprised about that. That's natural. A significant allocation also is directed towards Euro. But an increasing allocation, albeit from a very small level, is now directed to investment deployment in the region because of a, the opportunity set.
Really becoming deeper and bigger and more attractive. And B, the value, the opportunities to crystallise value also becoming better, right? The IPO markets are vibrant. You're seeing listings happen in Saudi and UAE and other parts of the GCC economy, the local investment opportunities in regional infrastructure are attractive. They are yield generating their inflation protected. The currencies are linked to the dollar, so you don't have that currency risk either. All of that is driving increasing interest in local deployment in addition to the developed markets, and of course the emergence of some very attractive markets in Asia like India, Southeast Asia, Japan, etc.
On what sectors and trends will shape GCC private market in the next 2-5 years
If I had to peer into my crystal ball and recognising that nobody has the perfect crystal ball in the first instance. I would anticipate the GCC market being a very attractive market for long-term infrastructure investment, both for investors as well as for investment managers like us.
And when I say like us, managers that have real roots in the region. It's hard to replicate four decades of knowledge, experience, scars, learnings, but most importantly relationships that you develop through being here through that period of time. It is a very interesting period for firms like ours with that history, with that pedigree, with that brand, the trust that we have engendered to be able to deploy capital at scale.
That is delivering both return, but also driving and facilitating the economic agenda that the leadership in all of these countries is pursuing in the long run. That is something that is very appealing from our perspective. The other thing that will naturally happen as a consequence is that the opportunity set off investing in local businesses will mushroom. It will flourish because as economies grow, you need more and more support for businesses to keep pace with the growth of that economy, whether it's for the ultimate consumer or it is B2B, and in both areas as a provider of capital into sectors that grow at or above the pace of local economic growth.