Advising new institutional investors: Abdulaziz Hayat welcomes risk averse investors in the VC asset class
While institutional capital is the foundation of the venture capital ecosystem, not all institutions have the same allocation expertise. In recent years, interest in the CR asset class has outstripped the growth in the number of CR professionals and fund managers.
Most institutions inclined to develop internal investment capacity will poach talent from the ranks of an existing venture capital firm and empower that person to build their own team. However, the MENA region simply does not have a large enough basin to poach.
To help fill this gap, Abdulaziz Hayat helps institutional investors in the MENA region set up their own operations and broaden their investment horizons.
Abdulaziz Hayat is a Kuwaiti investor and entrepreneur with experience in the United States and the MENA region. Hayat received an undergraduate degree in economics from the University of San Diego and a graduate degree in finance from Harvard University. Hayat’s experience is in investment banking and the management of venture capital investments.
Hayat’s advice to MENA investors
People like Abdulaziz Hayat, familiar with the investment mechanisms in the United States and the MENA region, are rare.
Acting as an advisor to a leading wealth management institution in the MENA region, Hayat emphasizes the importance of maintaining and complying with a deployment strategy. According to him, “a deployment strategy over several years during good and bad economic times is essential for success.” Continuing, he believes this is also because the outlook and early stage valuations are not closely correlated with immediate economic conditions, and therefore poor macroeconomic conditions are not a reason to stop a deployment strategy. .
Abdulaziz believes the best investors are those who are heavily indexed to a wide variety of startup trades so that they can secure future investment opportunities in breakout stars. He advises wealth management offices in creating and raising funds for new internal funds. After advising numerous growth-stage deals, he remarks, “Getting into growth-stage deals without having been a start-up investor is next to impossible without being a serious brand in the venture capital space.” .
An overview of the investment psyche of MENA investors
Having interacted and worked with MENA investors and US startups for years, Abdulaziz has extensive knowledge of their issues, strengths and general investment philosophies. Here, he shares an insight into the mindset of investors in the MENA region.
Hayat explains that as a group, investors in the MENA region face two major challenges: they don’t know how to allocate capital to promising startups and managers, and they don’t have the capacity to develop expertise in internal allocation.
Several American institutions, like PE funds, have made a habit of leading subsequent rounds for startups. However, institutions in the MENA region that are leery of risk at an early stage lack the brand power or the clear value proposition to reliably gain access at the late stage.
In addition, most institutions in MENA do not have the knowledge to develop and execute an investment thesis at an early stage. This is usually because the investors and executives of these institutions have not gained experience in VC, focusing on public stocks and real estate. VC analysis can be much more qualitative than quantitative.
Most MENA investors are notoriously risk-averse. “Investors in the MENA region have more of an extreme aversion to losses than other investors based in emerging markets,” says Hayat. Their desire to restrict their portfolios to secure investments is the culmination of the practices of their older patriarchs, who needed to secure stable sources of income. In some family funds, this investment philosophy persists long after the patriarchs relinquish control to younger family members who are more willing to accept risk.
Some younger family investors are only willing to accept the risk knowing that this maximizes the likelihood that their modest family fund will be exposed to a unicorn in the future, despite losses on other bets.
Abdulaziz points out that, even in the normal course of their investments, successful start-up investors have negative returns in the early days. The first bets usually fail and end, and the potential winners have yet to outperform the others. Some risk averse investors therefore wish to sell early for the sake of capital preservation. Abdulaziz sees this as his biggest challenge: teaching local investors to be patient and have confidence in the long-term vision.
As an investment advisor to institutions, Hayat pursues two objectives. First, get investors to agree to a predefined capital allocation for start-up investments through an indexation approach. Second, get investors to double the number of portfolio winners by increasing their exposure to explosively growing startups.
Main recommendations from Hayat to investors
Having extensive hands-on fund experience, Abdulaziz has built a solid, hassle-free and reliable method for investors. He divides it into four crucial stages:
Index: Conclude as many quality contracts as soon as possible.
Collaborate: Network, interact, work and invest with emerging managers with sector expertise.
Patience: Be patient and don’t panic and halt new investments when early losses occur or when the market eases.
Vision: Preserve capital when your breakthrough stars outperform their growing peers.
Abdulaziz’s excellence and visionary approach in the areas of strategy design, fundraising, investing and adding value has led him to act as an advisor to many new investors.
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