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Assets under management in the Middle East, which increased 52 per cent over the past three years, are set to grow further as oil and gas prices continue to rise.
A rally in oil prices, up more than 60 per cent over the past year and hovering above $100 a barrel, along with soaring natural gas prices are helping to drive private capital's improved fortunes in the Middle East, alternative assets industry data and analytics specialist Preqin said in a report on Thursday.
Natural gas prices in the US soared to a 14-year high this month and they surged in Europe as a result of the Russia-Ukraine war, now in its third month.
Preqin said: "The ongoing conflict in Ukraine alongside the continued post-pandemic economic resurgence is pushing commodity prices higher, creating short-term opportunities.
"But in the long-term, Europe’s governments are looking to reduce reliance on imported hydrocarbons. Efforts to increase energy independence and step away from imported hydrocarbons have major implications for the Middle East."
After contracting in 2015-2016 following the oil price slump that started in 2014, assets under management in the Middle East have rebounded since the end of 2019, increasing 52 per cent to $35 billion, with Saudi Arabia and the UAE recording improvements.
The UAE accounts for about 57 per cent of AUMs in the region as of the third quarter of 2021, Preqin says. Saudi Arabia accounts for about 24 per cent, while Bahrain has about 13 per cent of the region's AUM market.
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Venture capital deals in the region's software, internet and financial services sectors have grown in line with local governments' efforts to boost high-skilled jobs and make their economies more service-based.
Preqin cited Merak Capital's $40m investment in Saudi Arabian software technology company Master Works, the largest software deal in the first quarter of this year, as an example of local investment supporting growth in tech groups.
Riyadh-based Merak raised capital from Jada, a private equity fund of funds founded by the kingdom's Public Investment Fund, as well as Saudi Venture Capital Company, the government’s private equity fund of funds.
"This deal, and many others, signal the strength of regional governments' commitments to economic diversification, as well as the future role of private capital models in delivering this," Preqin said.
Venture capital fund-raising accounted for, on average, about 41 per cent of capital raised annually and 46 per cent of total capital ($3.7bn) since 2017, it said.
As private capital markets evolved over the past few years, the asset class mix in the Middle East has also changed and the inflow of international capital has increased into deals.
“Not only has the asset class mix changed with fund-raising moving away from real estate and more towards venture capital, but international capital is increasingly flowing into deals in the region," said Alex Murray, vice president of research at Preqin.
Three Saudi Aramco and Adnoc gas and oil pipeline deals in Saudi Arabia and the UAE attracted capital from BlackRock, Silk Road Fund, China Merchants Capital, Samsung Asset Management, GIC, Brookfield and Global Infrastructure Partners. The three deals in June 2020, April 2021 and December 2021 had an aggregate value of $38bn, according to Preqin.
"This marks a change from the traditional role of the Middle East as a source of capital for deployment outside the region. As economic growth drives investment opportunities, more global managers are looking at the region for deployment opportunities,” Mr Murray said.