Funds moving to PE formula

A massive total of $4 trillion in Middle Eastern capital is available for investment, in both private and public sectors with increasing moves to private equity-style deals, according to a report from management consulting firm AT Kearney.

This high investment power is largely linked to sovereign wealth funds. The assets under management of these funds have risen by 18% between 2006 and 2007 to reach $3.3 trillion with the Middle East accounting for 50%. The funds are expected to reach $5 trillion in 2010 and $10 to $15 trillion in 2015, the study said.

Traditionally, sovereign funds have turned their surpluses into risk-averse financial assets. But some now favour equity-type investments to gain higher revenues and exposure to strategic companies with more capability and know-how in industries that are crucial to their economies. The Abu Dhabi Investment Authority, for example, is moving towards private equity-style deals.

Private equity and sovereign fund investments also accelerate the growth of job creation, report adds.  “More than one million jobs have been created through private equity investments in Europe in the last four years” said Dr Dirk Buchta, managing director, AT Kearney Middle East.

The report shows that companies financed by private equity and sovereign funds grow faster than those traditionally financed. Private equity firms often invest in mid-size companies, mostly former family-owned businesses. With the help of private equity investors, these companies usually invest more heavily in R&D and become more international.