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Emirates Today

17-Apr-2006, Emirates Today

GCC private equity firms are currently on the road with 31 funds targeting $18.2 billion (Dh66.85bn) of investors’ money, statistics reveal.

In its first quarter Global Fund Raising Update, London-based Private Equity Intelligence uncovers a notable surge in the number of GCC-based private equity funds scouting for regional and global investors.

UAE-based fund managers alone are currently taking 18 private equity funds targeting $6.8bn (Dh24.9bn).

“We are now concentrating much more on the region in light of the huge increase in activity that we have seen in the Middle East private equity market of late,” Tim Friedman, head of funds in market for the UK based firm, told Emirates Today.

Worldwide, 739 funds are on the road seeking more than $300bn (Dh1.1 trillion), the research firm said.

The United States has the largest number on the road, with 426 funds seeking $206bn (Dh756.6bn), followed by 178 European funds seeking $67bn (Dh246.1bn).

The other 135 funds fall into the rest of the world category, targeting $32bn (Dh117.5bn).

That the GCC alone accounts for more than half of this figure indicates a transition in the popularity in the asset class among high-net-worth individuals, searching for viable investment alternatives, observers said.

Private equity, which is increasingly regarded as a preferred insurance form against the euphoria of the capital markets, involve longer-term investments typically locked in for eight to 10 years.

“It may be the case that fund managers are picking up on the demand that regional institutional and high-net-worth investors have for the asset class, as they are striving to build more mature, balanced portfolios in the face of increased liquidity in the region,” Friedman said.

Shirish Saraf, executive director of Abraaj Capital, a key UAE based private equity company, said private equity “negatively correlates with the market”.

So while he presumes the stock markets and real estate could potentially fall further in the coming years, private equity has vast potential.

“As an asset class, private equity has outperformed other asset classes on a five-year basis, yielding around 18 per cent returns globally,” Saraf said.

Using the money it collects from investors, Abraaj buys interests in regional unlisted companies with growth prospects, restructures them, and then exits the investments either through initial public offerings on a stock exchange, or by selling the interest to other strategic players in the industry.

“Most of the industries here are fragmented, so there is a consolidation opportunity,” he said, adding that hundreds of billions worth of government privatisations and extensive buy-out opportunities will also propel the industry.

Last month, Dubai International Capital, the private equity arm of Dubai Holding, unveiled a $500m (Dh1.84bn) fund with HSBC to invest in regional infrastructure projects.

Furthermore, Dubai Islamic Bank and Dubai World have partnered to bring funds worth $5bn (Dh18.37bn) to the market in the coming year and a half in seven sectors.

“What will separate the men from the boys in private equity is going to be the ability post-acquisition to operate these companies,” Saraf said.