Might of SWFs sidelining Mid-East private equity

The presence of the vast sovereign wealth funds (SWFs) in the Middle East is sidelining the local private equity community, a leading US executive has said.

“As Middle East investors have grown in maturity, they don’t like these funds much,” Tom Barrak, chairman of US real estate private equity giant Colony Capital, told Arabian Business on the sidelines of property event Cityscape Global in Dubai.

“Private equity is suffering from a fund-raising malaise in the Middle East, because now the big SWFs are saying ‘if you have a transaction, we will invest with you – if you don’t have a transaction, we’re not so interested in investing in these blind pools any more’.”

Barrak said that the key to making private equity work was the presence of a bountiful and plentiful public market, but said stockmarkets in the region hadn’t performed particularly well in that regard.

“I think for the outperformers, it’s always going to be the right vehicle for the market at the time, because the SWFs are doing such a good job that you can go direct,” he said.

“So again, I think private equity in the Middle East may suffer from not being a viable intermediary.”

According to the Gulf Venture Capital Association, private equity firms in the MENA region pulled together $1.25bn in the first quarter of 2010, an eighteen percent rise over the whole of last year.

But experts in the field have expressed concern that there are too many players in the local private equity sector, combined with a lack of transactions and even fewer exits.

Colony Capital is active in the Middle East via its investments in Carrefour, where it is the largest shareholder, as well as stakes in hotel operators Accor and Fairmont.

Globally, the company has invested over $45bn in various assets since 1991.