Dubai: Private equity firms in the Middle East have $11 billion (Dh40.37 billion) ready for investment but deals are hard to come by and exit routes are scarce in the current economic downturn, an industry report revealed on Monday.
Fund managers last year collected $6.4 billion, 10 per cent more than the previous year, according to the Gulf Venture Capital Association (GVCA) report for 2008.
With economic conditions deteriorating in the second-half of last year after the global financial turmoil, there was a significant built-up of "dry power" - the funds that can be potentially deployed.
"This liquidity results from both an increase in fundraising and a decrease in deals," the group said in a statement.
The number of private equity investments dropped by 22 per cent between 2007 and 2008, while the volume of investments declined 31 per cent.
As top recipients of private equity investments last year, Egypt received $467 million, followed by $416 million for Saudi Arabia and $340 million in the UAE.
Healthcare, transport and utilities were among the top investment areas, Imad Ghandour, executive director of Gulf Capital, told reporters. He added that the economic downturn had resulted in a reduced focus on construction and building materials sectors, as well as the oil and gas services sectors.
On new industry trends, Vikas Papriwal, a partner at audit firm KPMG's Private Equity and Sovereign Wealth Funds practice, said: "Fundraising appears to have become more difficult for smaller players."
Established players were able to raise larger amounts, boosting the average for fund size.
The report attributed last year's increase in fund collected to a region-focused investment fund of $2.6 billion by Abraaj Capital and several funds of $500 million or more by other companies.
Fundraising in the sector has doubled since 2005 with a compounded annual growth rate of 30 per cent.
"As a result of the stellar growth in fundraising activity over the last four years, cumulative funds under management increased from $4.8 billion in 2005 to $19.6 billion in 2008," the report noted.
Stocks: Public listings
Lowering the limit on shares companies are able to list on stocks exchanges will encourage family-owned groups to go public and allow private equity firms to exit their investments, Dubai International Financial Centre (DIFC) chief economist Nasser Saidi said.
"More than 85 per cent of companies in the region are family-owned. This is tremendous opportunity for the private equity industry to go into an alliance with family enterprises that require capital," he said, adding that private equity investors need an easy exit strategy that can come in the form of a market listing.
"At the moment our markets have a barrier against family businesses. They require them to list 55 per cent of their shares. Most families do not want to lose control of their businesses. We should think of lowering those listing requirement to (between) 20 and 25 per cent," he said.
He said opening up of the previously state-controlled sectors to other investors in several countries has led to the huge growth in the private equity business in the region.