Private capital investors in the Middle East are uniquely placed to prosper as the region’s economies reduce their reliance on fossil fuels
Private capital investors in the Middle East are uniquely placed to prosper as the region’s economies reduce their reliance on fossil fuels
Economies in the Middle East are at a crossroads. COVID-19 and the decline in oil prices – WTI has fallen from more than $130 a barrel in the summer of 2014 to around $40 a barrel today – are increasing the need for structural economic reform. In its October 2020 MENA Economic Monitor, the World Bank called for “profound institutional reforms” to reshape the role of the state, promote fair competition, accelerate the adoption of digital technology, and pursue regional integration.
Private investors in the region are uniquely placed to play a key role in the forthcoming economic transformation. The Middle East is home to some of the world’s largest investors, with the 10 largest institutions in the region managing a combined $3.71tn, according to Preqin Pro. The domestic investor landscape is dominated by sovereign wealth funds, which comprise seven of the top 10 investors, and account for 48% of the assets under management (AUM) in alternatives (Fig. 1).
Sovereign wealth funds have a long track record in alternatives and will turn an increasing proportion of their capital to domestic markets. The largest, Abu Dhabi Investment Authority (ADIA) with total AUM of $579.6bn, currently has 23% of its assets allocated to alternatives, with a stated target range of between 13% and 33%. The UAE’s second-largest sovereign wealth fund, Investment Corporation of Dubai (ICD) with AUM of $305bn, has a remit targeted at enhancing Dubai’s position as a competitive center in the global economy.
Abu Dhabi-based Mubadala also pursues both global and domestic investments and has been increasingly active in the Middle East. In 2018 it bought Amana, a provider of inpatient rehabilitation, long-term care, and home healthcare in the UAE. The acquisition provided an exit for Gulf Capital, which had facilitated a bespoke and secured mezzanine facility through its private debt fund.
Fund Managers Are Finding Success
Regional centers are increasingly trying to attract international capital. Preqin data shows that institutions from outside the region have $268bn invested in regional alternatives, with banks the largest grouping, accounting for 41% of the total. Since the collapse of private equity group Abraaj in 2018, regulators have made moves to reassure the international investment community.
Private capital AUM at Middle East-based fund managers has declined slowly in the past decade, recording a fall from $24bn as of December 2011 to $22bn in March 2020, according to Preqin data. This is due to a decrease in the amount of dry powder from $7.1bn to $5.3bn in the period, indicating that fund managers are finding attractive opportunities to deploy capital. As Fig. 2 shows, the 10 largest Middle East-based funds currently in market are seeking a combined $3.6bn.
Preqin is forecasting a CAGR in AUM outside the large regional markets of North America, Europe, and Asia of 11.1% (Fig. 3), a faster rate than the global estimate of 9.8%.
Key to economic success will be increasing intraregional trade, which the OECD said accounts for just 10% of the region’s trade – the majority (55%) is with Asia. The Middle East’s growing private capital industry can play a valuable role, and in many sectors investors are applying expertise learnt in other markets to create regional champions.
The Middle East is home to some of the largest and most committed investors in alternative assets and a growing cadre of fund managers. Widespread restructuring of economies will create an environment that private capital investors can thrive in.
Download a data pack containing all the charts in our regional articles for Future of Alternatives 2025. For more predictions and projections on the future of the alternatives industry, visit Preqin's Future of Alternatives 2025 Content Hub.