Oil-rich MENA funds to hit $9 trillion(2)

The unrelenting rise of sovereign wealth and a promising outlook for MENA private equity funds were among the key talking points at PEI’s Middle East Private Equity Forum in Dubai.

Sovereign wealth funds in the Middle East are set for dramatic expansion and, if oil prices remain around $100 a barrel, will manage as much as $9 trillion within a decade, vice chairman and chief executive of Abraaj Capital, Arif Naqvi, said yesterday in Dubai.

Speaking at sister publication Private Equity International’s Middle East Forum, Naqvi said much of the sovereign wealth will be deployed in infrastructure development, supporting economic growth. He estimated the Middle East and North Africa will need to invest $676 billion in developing its infrastructure over the next decade.

Naqvi said that as sovereign wealth funds “emerge and progress they will have to become more focused in the away they operate”.

Navqi also said the outlook for private equity firms in the region was “bright”, although challenges remain. These include the need for ongoing regulatory reform, continued development of capital markets, the availability of human capital and political risk. “But if we get it right it doesn’t get any better,” he said.

Arif Naqvi: new
offices in
Egypt, Turkey

Abraaj, a privately owned buyout firm that manages more than $5 billion in assets, is looking to benefit from economic growth in the region. This week it opened offices in Egypt under Yaser Gamali, the former chief executive of MAF Trust, and in Turkey under Selcuk Yorgancioglu, chief executive officer and head of corporate and investment banking at Deutsche Bank in Turkey. Both executives joined Abraaj at the beginning of March. Recruiting for both offices is underway.

Speaking at the same event, Sameer Al Ansari, executive chairman and chief executive of Dubai International Capital (DIC), predicted that 2008 “would be difficult year” for the global economy with economic turmoil in the US, high oil prices and the liquidity crunch. He said: “If anyone is well placed to take advantage of the opportunities it is the funds from this region.”

Al Ansari cited five main factors as drivers of growth of private equity in the region: high oil prices; the increasing flow of human capital to the region; the trend towards privatisation; family businesses turning to private equity firms for more “than just equity”; and international entrants to the market, such as The Carlyle Group.

Despite the credit crunch in the US, “liquidity continues to grow in this region,” he said, and this “could help the US”. DIC “continues to seek opportunities in Asia, especially in China and India”. Al Ansari, who is launching a fund to invest in Saudi Arabia, said his firm had committed around $1 billion in India.

Al Ansari also urged sovereign wealth funds to become more transparent.  “There is little question that there needs to be transparency,” he said. Regulators should for their part take an “optimistic, open and unbiased approach” and the funds could “help to take their mystique away and make life easier for all of us” by publishing their funds’ size and objectives.

There is little question that there needs to be transparency.

DIC's Sameer Al Ansari on sovereign wealth funds.

He also said that although DIC is not a sovereign wealth fund – owned by the Dubai government, it manages capital for the Emirate and third parties – many perceived it as such, so it needed to comply with regulations. In the past 18 months he said DIC had been through the US Committee on Foreign Investment procedure three times.

On DIC’s possible acquisition of Liverpool Football Club, Al Ansari said: “It is not an easy situation. The owners are in ‘dreamland’ over the valuations at the moment.”