The first time I experienced a deep panic of the sort that Dubai is now experiencing was in1987 when I thought that the financial and commodity world was going to end. I envisioned lifesyles reverting to the Dark Ages or worse. The stock market in the US had got way ahead of itself with the usual leverage and IPOs of inappropriate companies.
The market went into a freefall and dropped by a very large percentage. After reflecting, and after a few days of further downturns, I finally started buying, adding to positions I already had. Many clients were demanding that their portfolios be sold, but we convinced them to look at their market and portfolio strategy and sit tight. I believed that the US economy at that time was resilient and poised for further growth, that the market had some problems but not important ones, and that there would be a recovery of significance within a short time frame. This was the case – and our current market was not a surprise and reflects well on the US economy.
But, the Middle Eastern markets are different. They have problems, but nothing so deep and broad as the issues confronting the US in 1987.
Each of the significant Middle East markets, especially the GCC and Levant, has few public companies relative to the amount of money flowing into the markets. It is inevitable, therefore, that values of most public companies have become inflated. With this inflation, playing the markets has become more attractive and has led to ever more leverage. The extent of that leverage, which is ridiculous and dangerous, is matched by the depth of the fall now being experienced.
I am sure that the governments of the countries experiencing severe market downturns are undecided as to whether to interfere and stabilise or whether to let the markets take their course.
On the one hand, they have the liquidity and clout/money to turn the market back up; on the other hand, that is not the role of government and a correction, at this juncture, is healthy as long as it does not unravel and impact upon the entire economy. Hence, it is better to ride out the downturn and let the markets take their course.
It is inevitable that those living in the GCC, who see vast and growing oil and gas revenues that they cannot tap for themselves, would wish to see their own wealth increase. The markets have, until now, provided the means to see rapid and quick realised and unrealised wealth accumulation.
This points to the need for the GCC and other countries to provide other means for wealth accumulation: through jobs and business opportunities.
The downturn also points to the need for asset diversification in the GCC and Levant. At present, the two accepted and popular means for deploying wealth are real estate and the stock market.
The first is literally built on sand and can collapse; the second can only expand to a certain degree before it implodes. Private equity, which does not rise and fall every minute in value and does create jobs and industries, is one important asset class that is largely missing from most wealth portfolios. The other is investment grade bonds, which are not in huge supply, though that is changing.
This is not the first market drop for the Middle East's markets, but it is the first since oil price highs ran alongside the international profile of Dubai led increased awareness of the GCC.
As a result, new players do not have the history – nor lessons learned - behind them to be stoic in the face of erosion of wealth, when that is precisely what is needed.
This will not be the last drop, but before the next one, the markets will recover and rise still further, though I hope with more justification than we have seen very recently.
EDITOR’S NOTES AND EXECUTIVE SUMMARY
The Ascent Medical Technology Fund II, L.P. (the Fund) is being established by Ascent Private Equity II LLC to make privately negotiated investments in seed, early and mezzanine stage growth companies principally in the medical device industry and, to a lesser extent, in other medical technology industries.
To diversify access to scientific innovation, enhance the profitability of investments, and streamline proof of clinical efficacy, the Fund will be involving certain emerging markets in growing the companies in which the Fund invests. The International Finance Corporation (IFC), a member of The World Bank Group, is the lead investor in the Fund.
IFC’s mandate is to further economic development in developing countries through the private sector. Working with business partners, it invests in sustainable private enterprises in developing countries and provides long-term loans, guarantees, and risk management and advisory services to its clients. IFC invests in projects in regions and sectors underserved by private investment and finds new ways to develop promising opportunities in markets deemed too risky by commercial investors in the absence of IFC participation.
All Fund investments will avail themselves of opportunities that exist in selected emerging economies for clinical research, manufacturing, and intellectual property. This objective will be achieved either by (1) investing in US companies which will in turn invest in joint ventures or wholly owned subsidiaries located in developing countries; or, (2) by establishing businesses directly in emerging markets.
The Fund is seeking to raise aggregate capital commitments of $100 million. The minimum commitment is $1 million for individual investors and $5 million for institutional investors. A first closing will take place when the Fund has raised a minimum of $30 million of aggregate commitments.
Fund II is a Delaware Limited Partnership. The General Partner, a Delaware Limited Liability Company, has established in Bahrain a Feeder Fund Company that will be a Limited Partner of the Fund. The Bahrain Company is for those non-US investors who do not wish to invest directly into the US Fund.
The Principals of the General Partner managed Ascent Medical Technology Fund, L.P. ("Fund I") and Ascent Private Equity, LLC, established, respectively in 2000 and 1999. The advisor to the Fund, Ascent Capital Management Inc., is a US Securities and Exchange Commission Registered Investment Advisory firm. Fund I is more than 75 per cent invested, thus, enabling the principals of the General Partner to develop the Fund. Fund I has seen two harvests. The ROI is in excess of 240 per cent. All of Fund I’s other investments are operating; many have seen tremendous success since the time Fund I invested in them.
