Private Equity Flocks to Gulf Amid Fundraising Decline, Reports Reuters

By Hadeel Al Sayegh and Anousha Sakoui

RIYADH/LONDON – An increasing number of private equity firms are establishing offices in the Gulf region to strengthen connections with wealthy sovereign funds and family-run businesses, especially as opportunities for buyouts become scarcer elsewhere.

Traditionally, the Gulf served as a source of funding for buyout groups looking to invest in external markets. However, firms are now focusing on creating local teams, investing in regional businesses, and fostering the growth of local asset managers, according to industry insiders.

In the year leading up to November 1, global fundraising for alternative investments, including private equity, plummeted by 21% to $972 billion compared to the previous year, according to research from Preqin. Heightened interest rates have enhanced returns in competing asset classes such as bonds.

Sovereign wealth funds in the Gulf are urging private equity firms to invest locally as part of a broader strategy for a post-oil economy. This includes diversifying into alternative energy sources like hydrogen, transforming state-owned enterprises into regional leaders, attracting foreign investment, and generating new employment opportunities.

"Developing partnerships that are mutually beneficial is crucial for success in the Gulf today," stated Francois Aissa-Touazi, co-global head of investor relations at Ardian, a private equity firm that recently set up an office in Abu Dhabi. The firm currently has a team of 12, with plans to expand to 25 by the end of next year and establish a dedicated hydrogen investment team.

During last week’s Future Investment Initiative, a high-profile conference in Riyadh, the deputy governor of Saudi Arabia’s sovereign wealth fund highlighted the importance of having foreign investors physically present in the country to access its wealth.

"It will soon be mandatory to have your staff here to engage with PIF funds," remarked Yazeed A. al-Humied from the Public Investment Fund, indicating the preference for on-ground representation.

The message has resonated with private equity firms. Recently, Brookfield, a Canadian asset manager, established an office in Riyadh and is planning to open another in Abu Dhabi. European buyout firms, including Tikehau Capital and Ardian, have followed suit by opening offices in Abu Dhabi, while CVC established a presence in Dubai last year.

Bruce Flatt, CEO of Brookfield, noted at the FII that the firm has nearly $10 billion invested in the region and plans significant future expansion within Saudi Arabia. Brookfield manages a global portfolio of $850 billion.

Moreover, Saudi Arabia is set to impose a January 2024 deadline for foreign companies seeking government contracts to establish regional offices in Riyadh.

"As private equity firms open offices in the Gulf, they aim to foster closer relationships with limited partners for fundraising and collaborate with them on new deals," explained Anthony Diamandakis, head of Citi’s alternatives division.

Additionally, Saudi Arabia’s privatization initiatives—spanning various sectors from sports to agriculture—are opening key assets to foreign investment.

"Gulf governments and their sovereign wealth funds want investors to join them in pursuing assets that have strategic significance for the region, while also delivering financial returns," commented Rishi Kapoor, co-CEO of Bahrain-based Investcorp.

Overall, while much of the current investment activity has focused on infrastructure, private equity is also exploring opportunities in the energy transition, including hydrogen and carbon capture technologies, as governments aim to meet net-zero emissions goals. Furthermore, private equity firms are assisting local institutions in enhancing their asset management capabilities, creating a symbiotic relationship that allows for larger private debt or equity transactions.