Gulf private equity returns 'set to soar'

PRIVATE EQUITY: Abraaj Capital sees a big upturn in investments in the Gulf in 2009.

Private equity returns in the Gulf will dwarf past ones, as cash starved entrepreneurs look to alternative sources of funding, the chief executive of Abraaj Capital said on Tuesday.

“The private equity industry in this region is going to enter a phase where I believe that the returns we have seen over the last few years will be dwarfed by what we are going to see,” Arif Naqvi told a private equity conference in Dubai.

“At Abraaj, we are sitting on a lot of dry powder and a lot of capacity to do some serious investment activity in the year to come.”

The Dubai-based firm favours defensive sectors such as pharmaceuticals, education and infrastructure.

Its current investments include a 6.4 percent stake in low cost carrier Air Arabia, 25 percent in private school operator GEMS Schools and 45 percent in supermarket Spinneys.

“A whole stack of very high quality names are beginning to look at this region, thinking of investing more aggressively,” Naqvi said.

These include US-based The Carlyle Group and KKR (Kohlberg Kravis Roberts).

The former on Monday announced that it has completed raising its first Middle East and North Africa (MENA) fund, Carlyle MENA Partners, with equity commitments of $500 million.

The fund will invest primarily in energy, financial services, healthcare, industrial, infrastructure, technology and transportation in the MENA region.

Naqvi said the arrival of more and bigger players would be good for the industry since it would increase competition and lead to a larger amount of capital being deployed.

“The public markets are paralyzed and closed, not just regionally but globally. Well, we are the alternative option. Private equity has a good name in this region. People have seen how value has been created,” he said.

But he urged his peers to look more closely at the investments they were making, to take a long term perspective and to learn more about the industries they were entering, rather than just focusing on the right time to exit an investment.

Many clients in the region are more patient than their western counterparts, he added.

“You have patient money you are deploying. You have money for ten years and you do not have performance pressure to deliver that return tomorrow or the day after,” Naqvi said.

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