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Private equity 2014: Room for optimism?

Investors begin to see the stability in the region

by Imad Ghandour

Nouriel Roubini, the famous economist nicknamed Dr. Doom, was predicting the collapse of the world economy in 2013 as he foresaw a perfect “economic storm” for the year. Fortunately, the 2013 storm is turning to an economic spring throughout the globe — the private equity (PE) industry included.  

The Gulf Cooperation Council (GCC) and many other countries in the region have maintained positive economic growth since 2009, although such economic track records have received very little credit so far. This economic growth, coupled with political stability, is starting to receive greater recognition from international institutional investors, who are now trickling back to the Middle East and North Africa.

Most PE fundraisers have mentioned significant interest from a selected group of avant garde international institutional investors — up from almost zero a couple of years ago.  In light of the Brazilian economic winter and the Indian rupee yoyo, the GCC in particular has sharpened its image as an economically stable region. Even American institutional investors are starting to see the virtue of investing in the faraway lands of Arabia, where petro reserves ensure economic stability and local currencies have been eternally pegged to the all mighty United States dollar.

Fortunately for the survivors of these grim years, it seems that the investment cycle is on an upturn. Most of the experienced managers blazing on the fundraising trail have reported good traction.  The first to publicly break the good news was NBK Capital, which announced a first closing of $217 million for its second PE fund. Privately, no less than four other funds have disclosed good traction in fundraising and some first-closing of their funds.
The recent string of investments and divestments by the regional PE players have also emphasized to both regional and international investors that the surviving players are the best in class and worthy of their trust. Abraaj Capital, NBK Capital, Gulf Capital, Amwal Khaleej and others do not cease to amaze the investment community by almost monthly exit announcements. The fallacy that there are no exits in the region has been put to rest. The MENA region is a region where you can make money in private equity investments — if you bet on the right manager of course.

Going back to Roubini, his consistent gloomy predictions could not resist the tide of good news. In an interview on CNBC on January 2, Dr Doom was more optimistic: “The advanced economies, benefiting from a half-decade of painful private-sector de-leveraging, a smaller fiscal drag, and maintenance of accommodative monetary policies, will grow.”
Furthermore, should recent political events begin to relieve the accumulated tension in the region, and the war cries be replaced with more peaceful tunes, the good trends will continue. Hopefully, the war in Syria can be contained and move toward a resolution. Whatever the form of the Iranian grand deal or a potential Syrian peace deal, peace with Iran and an end to the in war in Syria are good for business and investment. Stability will bring more prosperity, and more prosperity will bring even further stability.

Happy deal-making in 2014.

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Imad Ghandour


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