Private equity investors upbeat

Buyout companies expect capital to return to the Gulf this year after fund-raising fell by 84 per cent last year, one of the worst years on record for the private equity industry. Private equity funds investing in the MENA region raised just US$1.1 billion (Dh4.03bn) last year, down from $6.9bn in 2008, according to recently released figures from the Emerging Markets Private Equity Association.

According to Dow Jones estimates from January, private equity funds globally raised $95.8bn last year, down 68 per cent from the previous year. "We are seeing small but steady flows from [investors] as opposed to 2009," Ahmed el Houssieny, a managing director at Egypt's Citadel Capital, said at a private equity conference yesterday in Dubai. Antoine Drean, the chairman and chief executive of Triago, a company that helps raise funds for buyout firms and brokers trades of stakes in private companies, said the first half of last year was very slow for the industry in the Gulf and elsewhere.

"Today the end-of-the-world scenario is not so much the case," he said. The private equity industry is seen by many people as a crucial cog in the development and diversification of economies in the Gulf. Private equity firms help seed development by buying stakes in small companies and providing them with capital to finance growth. Private equity funds often exit their investments through listings on local stock exchanges, setting the groundwork for the next stages of growth.

But the industry in the Middle East remains young and makes up only a thin slice of the global private equity pie, which was estimated last year to be worth $2.5 trillion. Traditionally, the Gulf has been a major source of investment funds for western private equity firms rather than a destination for investment. Still, many private equity companies are pledging to make millions of dollars' worth of buyouts in the region this year, bucking a slowdown last year to just $2.2bn of investments. Citadel, for example, said it planned $400 million of investments in Africa and the firm is also close to raising $2.2bn to build an oil refinery in Egypt. Qatar First Investment Bank, a recently formed Doha-based firm, plans to deploy about $250m in the Middle East.

Given the global and regional economic slowdown and large declines in property prices, though, executives said they were being more selective. "We're still real-estate shy," said Emad Mansour, the deputy chief executive and chief investment officer of Qatar First Investment Bank. "We are looking at defensive sectors like health care, consumer goods and oil and gas-related services. That sector in general is the backbone of the entire region."

But despite assurances from local firms that they will invest more money this year, the region still has trouble attracting big investments from outside, said Stephen Murphy, the managing director of institutional fundraising at Citadel. The Middle East was relatively invisible to international investors, even those who targeted emerging markets such as China, Russia, India and Brazil, he said. [e-mail]