When you think of who spends time in Northern Iraq, U.S. military personnel, Peshmerga, Kurdish civilians and camels may come to mind, but private equity investors? Maybe not the first thought, but yes, some spend time there too. While most of their counterparts are tripping over one another to invest in China and India, the partners at Scimitar Global Ventures are focusing on investing in Romania, Northern Iraq and North Africa. The private equity firm is now in the process of raising its first stand-alone fund, which has a goal of $50 million.
Scimitar was founded in 2003 by veterans of New York-based JP Morgan Private Bank, and it has offices in Dubai, Geneva and Stamford, Conn. It makes later stage venture and small buyout investments in financial services, energy, security and industrial companies in Eastern Europe, Northern Iraq and North Africa.
The firm was founded with its partners having established relationships with wealthy individual investors from the Middle East. Funding for its early deals was raised on a one-off basis from its pool of individual investors and did not necessarily follow its current strategy. For example, Scimitar beat out an established secondary player to buy the venture portfolio of Corning (NYSE: GLW). In 2003, Scimitar invested in a seed round of funding for Dunya Travel Services, the first travel agency in Afghanistan. Scimitar has since honed its focus on the developing regions of Eastern Europe, with a special focus on Romania and the Middle East, Northern Iraq and the Northern African nations of Morocco, Algeria and Tunisia.
The firm hopes to have a first close of $25 million by the end of March and a final close on $50 million within six to nine months. The overwhelming majority of its limited partners will consist of wealthy individuals. According to Partner Scott Ogur, the firm expects half of the fund’s backers to be individual investors inherited from the team’s days at JP Morgan. He adds that the firm would be happy with getting two or three institutional backers putting up about 25% of the capital. Two thirds of the firm’s LPs are expected to be from the Middle East and one third of the LPs are expected to be from Europe. The fund has a 2.5% management fee and a standard 80/20 carry structure.
Firm partners are investing one percent. In addition to Ogur, who is based in Stamford, Conn., Scimitar’s partners include Kabir Arghandiwal, who joined Scimitar from Morgan Stanley and is based in Dubai; Peter Tarazi, who managed private banking for the Middle East and Africa for JP Morgan and is based in Geneva, and Zachary Venegas, who led JP Morgan’s private banking effort in Bahrain, where he now runs Scimitar.
While the three foreign-based partners are all proficient in multiple languages, they insist on spending 12 months in a country before investing and having a local partner in all of their investments. “The biggest mistake we see people make is they don’t understand that you have to be able to extract the returns,” says Ogur. “You need to understand the legal, regulatory and political environment. You have to make sure you pick the right local partner and are protected; and make sure you can enforce your rights.” Local partners may be co-investors and will be given an equity stake in what they manage.
Ogur says he expects the fund will have a three-to four-year investment period with investments spread out fairly evenly over Romania, Northern Iraq and the North Africa region.