ISLAMABAD, MAR 14 (DNA) – Private equity has always played a pivotal role in the development of small and medium-sized enterprises (SMEs) globally by providing not only capital but also operational expertise, managerial bandwidth, leadership and vision. In Pakistan, although the regulatory framework for private equity and venture capital was first introduced by the Securities and Exchange Commission of Pakistan (SECP) in 1995 and has been revised thrice in 2001, 2008 and most recently in 2015, the industry is yet to make its mark in any significant manner.
A number of local and international players showed keen interest in the private equity space in the mid-2000s, when many of the local brokerage houses and investment banks such as Arif Habib, AKD, BMA and JS looked at setting up private equity businesses, however, most of the local investment houses dropped the idea either due to the unfavourable regulatory regime or later due to the global financial crisis in 2007-08.
JS was the only local player to set up a fund at the time, however, the fund was registered offshore due to the low tax, superior regulatory regime and the double tax treaty with Pakistan.
Abraaj also entered the Pakistan private equity market around the same time with its investments in BMA and in Mannan Shahid Forgings. Abraaj later made larger investments in Byco and K-Electric (formerly known as KESC). Both firms, Abraaj and JS, have struggled to deploy their capital in Pakistan.
The second wave of private equity funds came in around 2012-13 when USAID came up with the Private Public Investment Initiative (PPII) programme, which provided three private equity players, The Abraaj Group, JS and Boltoro with $24 million in capital commitments.
All three funds were registered offshore as the local regulatory framework was not finalised till 2015.
The second wave of the private equity funds has also not been able to generate much fanfare as JS is yet to make its first investment, The Abraaj Group is rumoured to have frozen its fund and returned un-invested cash capital to its investors and Boltoro is yet to announce any significant transactions in the SME space.