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The Ups and Downs of Private Equity in the Middle East – October 2014

by Chloe Wong

  • 28 Oct 2014
  • PE

This month, two private equity firms based in the Middle East, NBK Capital and Gulf Capital, closed their latest funds at $310mn and $750mn respectively. These two vehicles are the largest to date for both managers, and both firms significantly surpassed their original fundraising targets. This success contrasts reports that Carlyle Group cancelled their fundraising plans for a second MENA-focused vehicle because of a lack of interest from investors. However, it is clear that appetite from international private equity firms is still alive, with global giants such as Blackstone Group and Warburg Pincus making investments into the region this year.

According to Preqin’s Fund Manager Profiles online service, there are 101 private equity firms headquartered in the Middle East, and over the past decade they have raised $14bn in aggregate capital commitments. Unsurprisingly, Dubai emerges as a hot spot, with over a third of these firms (35%) based in the emirate and fundraising data showing that this city alone accounts for 23% of the total capital accumulated for the Middle East.

The GP to have raised the most private equity capital over the past decade, however, is headquartered in Kuwait: Global Investment House, which has $2.7bn in aggregate capital commitments. As a buyout firm, it is industry-agnostic and closed its last vehicle, Global Buyout Fund, in June 2008 on $680mn. Together with Global Investment House, Gulf Capital and Swicorp rank as the top three Middle East-based private equity firms, by funds raised in the last 10 years.

Preqin’s latest fundraising statistics show that in 2014 YTD, there have been six fund closures by private equity fund managers headquartered in the region. These funds have collectively amassed $1.7bn in capital, which is almost double the amount secured by Middle East-based managers in the whole of 2013. As of October 2014, there are currently 23 fund offerings on the road from Middle East-based GPs aiming to collect an aggregate $8bn. 

Analysis by geographical preferences reveals that only a select few of the 101 firms seek investments outside of the Middle East, investing in continents such as Asia and North America. This means that most of the capital raised remains within the region, with many looking to capitalize on the rich natural resources available in the Middle East, specifically investing into private equity opportunities in the energy and oil & gas sectors.

Increased government spending in recent times will prime the Middle Eastern economy with attractive investment opportunities, and potentially pique the interest of GPs and LPs around the world. However, concerns over political instability and slowing economic growth, particularly in juxtaposition with its East Asian counterparts, may well hinder the region’s ability to secure capital from potentially wary investors.

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