Crisis of the class of 2009

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Regional governments are now seeing the need to invest in a knowledge-based economy.

"Schools are operating at 100 percent capacity and there is a lot of stress on the existing capacity especially for the better known schools," says Purshotam Ramchandani, senior vice president at Abraaj Capital which has investments in more than 50 schools across the region through its stake in GEMS.

He points out that more than 22,000 new students joined the UAE school system annually between 2001 and 2006.

It is not only state schools being targeted. The number of private sector places is also being addressed as an increasing number of parents consider privately educating their children.

Since the early 1990s private enrolment in the UAE has increased fourfold. More than 40 percent of the UAE's student population is currently enrolled in private education and according to the Dubai government, 88 out of 132 of Dubai's schools were privately run during the 2006-07 academic year.

Those who have already invested in the region's education sector include Dubai-based GEMS, Evolvence Capital and Zabeel Investments, which recently acquired a stake in the National Bonds Corporation's Madaares initiative which plans to open several primary and secondary schools across the UAE.

"Governments are keen and determined to increase the quality of education across the board," says Ramchandani.

There is a migration from public to private but at the same time, governments are engaging with the private sector to allow them to come in and transfer their know-how, to manage these schools over a 10-15 years contract," he adds.

GEMS is one of the region's largest private education providers with 26 schools across the UAE educating around 70,000 pupils, which, the group claims, accounts for 14 percent of the UAE education market. In July the firm announced a $408m expansion plan which would provide 20,000 new school places across the UAE.

The group owns and operates 60 percent of its schools while the remaining 40 percent are owned by others and managed by GEMS, a proportion which has more than doubled in the past two years.

"Increasingly there are a number of investors in the region that are interested in socially responsible investments that not only provide them with a stable rate of returns but also an investment that gives back to the community," explains Varkey.

Dubai-based buyout firm Abraaj Capital acquired a 25 percent stake in GEMS last June. Investing in education is an attractive investment, particular in the primary and secondary sectors in which GEMS operates in, says the firm.

"Kindergarten to Year 12 presented the maximum opportunity in terms of a demand and supply imbalance, from an investment perspective," says Omar Lodhi, executive director at Abraaj Capital.

The number of private equity fund houses in education is also on the rise. Last year Kuwait's Global Investment House acquired a 70 percent stake in Al Rayan Holding Company, a Sharia-compliant education-specific holding company.

The firm also has a number of investments in universities and schools in Kuwait and plans to continue to invest in the industry as the opportunities arise.

"[Parents] here are looking for more sophisticated education and schools which provide a wide range of subjects - such as more than one language - and most of the expatriates in the Gulf look at the private sector. Financial investors will be taking the business of education to a higher class," explains Majde Fanous, senior investment manager at Global Investment House.

Dubai-based Evolvence Capital is also investing heavily in education and has already secured a Dubai-based campus for British boarding school, Repton and the American Community School. The firm, which is currently in talks with a number of other reputable American schools, sees its investment in education as a long-term value-added commitment rather than a short-term money maker.

"There are other more profitable businesses," says the firm's founder and CEO, Khaled Al Muhairy. "Its much more value added to us in terms of us contributing back to society. If you are going to build the best school in the region you need to be patient and have an ability to absorb losses," he says.

Now in its second year, Repton has managed to secure 1000 students each year despite the fees of between $22,000-38,000 per year.

"The difference between us and other private equity firms is that we knocked on Repton's door, we convinced a 450 year-old school and we showed them that there is a need for the level of education they are providing in the UK here. We wanted to make history with them."

Investing in private education may not seem like an obvious choice in many other regions, but in the Gulf it is creating a buzz among private equity houses, banks and funds.

"Education as an industry is recession-proof. It's like healthcare - it's not as affected by cycles. People have to send their children to schools and it's an attractive investment which we think will see a lot of additional investment over the next five years," explains Lodhi.

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