The Shariah compliant private equity market has been focusing on developments in the artificial intelligence (AI) market segment in recent times, UK-based Mnaara Founder and CEO Saad Adada shared with IFN Investor.
“Options for investors to access the AI revolution that is happening currently is very limited. Either you go to listed companies that already have, I would say, delivered the value … or you would go into a very early-stage ideas that might fail.”
An alternative would be to consider firms that are already operational. “There is this area in the middle where you want companies with US$20-30 million revenues, but they are on a trajectory to reach US$100 million in revenue.”
Saad explained the only way to access these firms for investment would be through private equity – via early-stage funding, known as ‘series A or B’ cash injections. This arena can be highly competitive and it helps to ensure the offers “are relevant to a business cycle and with the right managers”.
Another hot investment trend is that of secondaries – buying from other private equity fund companies at a discount. “There’s some sort of a liquidity squeeze in terms of exits and IPOs, especially with rising interest rates in the past couple of years, causing capital to move towards other asset classes.”
Tapping such opportunities is not easy due to the high-ticket sizes of deals handled by the investment managers involved, typically exceeding US$100 million. This limits opportunities to smaller investors as private equity managers will not get enough from them quickly reach the expected fund sizing.
“So, they prefer working with institutions that are usually global sovereign wealth funds, pension funds. If from the private wealth space, those would be family offices. There’s no hidden agenda.”
Mnaara straddles the space between these big players and the mid-sized investors community, with a GBP100,000 (US$126,175) minimum entry. “It is more affordable to a lot of people and we invest on their behalf in the bigger pool as one ticket.”
Such a scheme also provides the bigger firm linkages to an extra investor pool that they are not familiar with – the Shariah compliant investor – because private equity deals are often identified in the investment space as producing interest-based returns, explained Saad.
“This is the challenge we solve. It is really about looking at the managers out there and making sure that the type of income being delivered is not fundamentally interest. It is on the back of either trade or on the back of leasing.”
