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| Mideast private equity funmds raise $6.4 billion in 2008 |
| Press Trust of India / Dubai Mar 17, 2009, 13:38 IST |
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Middle East private equity fund managers raised a record $6.4 billion in 2008, up more than 10 per cent over 2007 and more than double the amount raised in 2005, a report has said.
Large-size funds are primarily responsible for this growth, with the average fund size in 2008 being $258 million, compared with $213 million in 2007 and just $177 million in 2006, according to a report by Gulf Venture Capital Association's (GVCA).
This trend is driven by the need for more flexibility in structuring deals and the past success of large buyout transactions, said the 2008 GVCA report, developed in cooperation with KPMG, and Zawya, and supported by Hawkamah — the Institute for Corporate Governance.
Three regional funds have crossed the $1-billion mark, according to the report, and the current economic downturn may make it more difficult for all, but the most established fund managers to secure the successful closure of larger funds.
Yet, there is good liquidity among regional funds, which are cash-rich with $11 billion in capital under management yet to be deployed. The report notes that this 'dry powder', as it is called, gives private equity a strategic opportunity vis-à-vis target companies, given the limited scope of other funding sources available in the current environment.
This liquidity results from an increase in fund-raising and a decrease in deals, with the number of private equity investments dropping by 22 per cent between 2007 and 2008, as well as the total investment size, which fell by 31 per cent.
The report found that over the past four years, Egypt, Saudi Arabia and the UAE were the largest recipients of PEs, at 33 per cent, 15 per cent and 14 per cent, respectively. The majority of funds are Middle East and North Africa focused, with Turkey sometimes included as part of that region.
"The economic fundamentals of the region remain strong and are supported by aggressive fiscal policies. Governments' reserves will continue to trickle down to the rest of the economy - sustaining corporate profits and public investments," GVCA Information & Statistics committee Chairman Imad Ghandour said.
Although fundraising in the region has been strong, compared with the total value of announced fund sizes, it is clear there have been delays in reaching target sizes.
After excluding one major fundraising, only 16 per cent of the total amount announced in 2008 was actually raised in the same year, compared with 65 per cent in 2005. Roughly half of the funds announced in 2006 have so far been raised, and approximately USD 11.7 billion of announced funds in 2006-8 have yet to make a close.
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