PRIVATE EQUITY

The good, the bad and the ugly - there's money to be made, but it won't be easy

August 2010

In 2010, some Middle East private equity teams will make superior investments. But separating the best from the worst won't be easy

Steadily improving capital and equity markets are an auspicious sign for the battered Middle East private equity industry. Backed by some of the strongest economic growth in the world and over $13 billion in uninvested commitments, this year should mark a return to lucrative private equity deals based on strategic and operational value. 

On a broader level and over a longer period, regional private equity’s new professionalism – imposed by the end of easy credit and a winnowing of practitioners – will ameliorate balance sheet discipline and corporate governance, while encouraging consolidation and sowing seeds for new industries. All of this will eventually strengthen the Middle East’s twin Achilles’ heels of weak financial markets and economies that are overly dependent on hydrocarbons.

But while the Middle East’s most competent private equity investors spearhead economic change and prosper through renewed emphasis on active ownership, the shakeout in the region’s private equity industry will continue.
Roughly 130 private equity firms were founded in the oil-rich Gulf Cooperation Council, from the industry’s regional beginnings at the turn of the century to the apex of high oil prices and easy credit during the summer of 2008. Many, too many, of these new firms invested during a speculative bubble, fueled by soaring values on poorly regulated and opaque regional stock markets.

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