The Middle East & Israel is a region that has seen an enormous increase in wealth in recent times and, consequently, it has become a player of growing importance in the private equity space. The buy-side presence of the region is significant and its LP base provides a substantial amount of capital to GPs, not least due to commitments from wealthy families, high-net-worth individuals and some of the largest sovereign wealth funds in the world.
Preqin’s Investor Intelligence currently tracks 137 Middle East & Israel-based institutional investors that are either currently active or considering investing in private equity funds. The largest proportion of investors is based in United Arab Emirates, accounting for 26% of investors in the region. Saudi Arabia and Israel each account for 18% of investors in the region.
Israel has seen challenging economic conditions in 2014. Statistics show that its economy shrank in Q3, as investments in fixed assets and exports of goods and services declined due to the conflict in Gaza. In spite of this, a number of large institutional investors based in the region still expect to allocate substantial amounts of capital to private equity funds in 2015. A noteworthy example is the $90bn Israeli public pension fund, Amitim. Over the next 12 months, it expects to allocate $450mn across 12 to 15 private equity funds.
Of the 36 sovereign wealth funds tracked by Preqin’s Investor Intelligence, 12 are located in the Middle East. These sovereign wealth funds have aggregate assets under management of approximately $1.3tn. Their large pools of capital and long-term investment approach make sovereign wealth funds well suited to investing in the illiquid asset class, so it is unsurprising to find that private equity remains a core part of these LPs’ investment portfolios. Abu Dhabi Investment Authority, the largest private equity investor in the Middle East, has a long-term policy of allocating up to 8% of total assets to private equity.
Of the Middle East & Israel-based investors that revealed a fund type preference to Preqin, 69% have a preference for, or have previously invested in, buyout funds. The second most attractive fund type for investors in the region is venture capital, with 61% of investors having previously invested in or currently showing a preference for the fund type. Fifty-seven percent of active investors in the region have shown an interest in growth funds.
With such large pools of capital on the balance sheets of sovereign wealth funds and insurance companies in the Middle East & Israel, the region is likely to maintain, or indeed see growth in, the role it plays as a key market for GPs around the globe seeking capital commitments.