Private Equity in the Middle East

Assessing the Impact of the Financial and Economic Crisis
by Fadi Arbid, Amwal AlKhaleej

After years of cheap credit and willing investors, private equity in the Middle East and North Africa (MENA) region now faces a challenging period. International banks are frantically deleveraging and plummeting stock markets are blocking the exits for fully invested and mature funds. At the same time, investors are shying away from illiquid asset classes.

In light of this, private equity firms in the MENA region are feeling the effects – after half a decade of petrodollar-fuelled growth and bullish forecasts, the suddenness and deepness of the decline is leading to some abrupt adjustments. Not only is fund-raising off, but the price of oil – the main economic driver of the region – has fallen off a cliff, too, following a sharp run-up, and there is a dearth of available leverage. One clear reflection of the sudden shift in the economic outlook: The deterioration in Arabian stock markets has outpaced that of more developed equity markets.

Yet experts from Wharton and Amwal AlKhaleej, a leading MENA-focused private equity house headquartered in Saudi Arabia, say that regionally oriented private equity funds that have capital to invest, adapt to the new realities, and follow a MENA-compatible strategy are likely to do well in the future. In fact, the credit crunch could even end up giving a boost in the long term to Middle East private funds with the right model. Moreover, despite the many challenges unleashed in 2008, the region’s economies on balance are likely to fare better than any other region in the world going forward.

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This article was produced by Knowledge@Wharton, the online business journal of The Wharton School of the University of Pennsylvania. The project was sponsored by Amwal AlKhaleej, a leading private equity firm founded in Riyadh with offices in Dubai and Cairo which focuses on investments in the Middle East and North Africa regions.