According to Preqin’s Fund Manager Profiles database, Dubai continues to be at the forefront of private equity in the Middle East, home to more than a third (35%) of the 119 active firms in the region. Outside the emirate, the municipalities of Riyadh (9%) and Manama (9%) are the other significant hubs in the area. Unsurprisingly, the breakdown of the region’s private equity firms by country tells a similar story. The United Arab Emirates dominates, housing 43% of all private equity firms in the Middle East, while Saudi Arabia comes a distant second (17%), followed by Bahrain and Kuwait.
Dubai is also home to the Middle East’s largest private equity firm based on capital raised in the last decade, The Abraaj Group. Since the turn of the year, the buyout firm has raised more than $1.4bn for investments in Africa, bringing its 10-year cumulative fundraising total to $5.6bn. Along with The Abraaj Group, Kuwait’s Global Investment House and the Doha-based Qatar Abu Dhabi Investment Company rank as the region’s largest private equity firms based on funds raised in the last 10 years.
With the exception of Qatar Abu Dhabi Investment Company, three of the four largest private equity firms in the region focus primarily on buyout investments. Despite this, venture capital remains the most prevalent strategy among private equity firms based in the Middle East, with 36% of fund managers employing venture as a main strategy. In comparison, 28% of firms adopt buyout as a main investment strategy, closely followed by growth (22%).
Despite the ongoing economic, social and political pressures in the Middle East, fund managers continue to invest a large proportion of their capital close to home. According to Preqin’s fundraising statistics, between 2008 and 2015 YTD, almost two-thirds of capital raised by firms based in the Middle East invested domestically. Nevertheless, there is evidence to suggest that fund managers are now increasingly looking to invest outside of the region too, with a keen eye on Africa and Asia in particular.
An inability to quell this region’s economic, political and social unrest seems to be the main barrier to overcome in order for significant growth in Middle Eastern private equity. Yet with increasing wealth, a young population, a large natural resource presence and considerable needs for improved infrastructure, there remains potential for growth for the asset class. Recent events such as the thaw in US-Iran relations are likely to provide a good platform for continued improvement in perceptions towards the region, facilitating future growth into an opportunity-rich landscape.