Private Equity In The GCC: Who Will Survive?

With global markets in flux over the last few years, asset managers and institutional investors have been keenly juggling asset classes, with low-risk investments emerging as a favourite during the crisis years.

But recent reports have found that despite posing a higher risk outlook, private equity (PE) investments in mature markets like the US and Europe outperformed equity markets.

“We believe that the climate is rather improving for PE, and we are relatively bullish on global PE, though in many respects it’s also very local,” states Michel Abouchalache, CEO of the Quilvest Group, which has over $22 billion of assets under management.

“You need to make important choices in terms of geography, about teams and investments,” he states.

“In the Middle East, our position today is that the macro backdrop, for obvious reasons, is very attractive in terms of demographics and rising consumer and business demand.

“But the middle, which is the PE layer, is yet to mature. There are a lot of themes that came to burst during the euphoric years and there was a lot of money raised. But the activity is still limited,” he says.

The GCC’s private equity industry had assets of less than $1 billion just over 10 years ago, but has grown over 15 times since then, stated a report by the Qatar Financial Centre Authority released last year.

“Although the PE industry has undergone major shake-up during the recent financial crisis, it appears to be the leading component of the GCC asset management industry,” the report said.

And with the local financial markets – especially in the UAE and Saudi – posting strong performances, investors are slowly gaining confidence about the region’s capability to generate returns.

“Private equity is generally a cyclical industry and investors should be thinking about their MENA private equity strategy now,” states Taimoor Labib, regional head of Private Equity MENA at Standard Chartered Bank.

“We are firm believers that structured investments with a clear exit path will still be executable in this uncertain environment.”

Dr. Karim El Solh, CEO of Abu Dhabi-based investment firm Gulf Capital, agrees: “The GCC’s private equity activity has stabilised and is picking-up again post the financial crisis and had limited or no impact from the ongoing Arab Spring.”

According to Solh, defensive sectors with underserved demand are currently the most attractive for regional PE managers.

“Food, power and water, healthcare, education, logistics, services and retail are a few examples of sectors with large potential for future growth,” he says.

Labib is also bullish on similar sectors: “Sector wise we continue to follow government budgets and consumer discretionary income spending patterns, which ultimately lead us to retail, food and beverage industry, industrials, construction and contracting, and healthcare.”

Geographically, experts agree that countries like Saudi Arabia and the UAE are the natural picks, where young populations and higher incomes present attractive long-term playfields.