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The private equity market in the Gulf region has seen a reversal of fortunes in the past few years. This was an asset class that was none existent a decade ago. It was an industry that was built upon twin bubbles in the equity and the property market, along with some of the most absurdly valued IPOs on the planet. New issues in the equity market turned into dreams of instant riches among capital market investors. The reasons for this is that the systemic risk in GCC private equity was grossly underestimated by investors who assumed that the regions equity and property bubbles would last forever. However, in 2008, investors were still allocating almost $6 billion to asset classes for six main reasons:
1. Oil prices plunged from $148 to $40 in six months, it became obvious that the gulf would face a decline in growth rates, a credit crunch and an outflow of offshore capital
2. A brutal bear market in the GCC equities gutted investor appetites for IPOs, a classic vehicle for private equity exits
3. Low caliber of regulation, disclosure and due diligence in the region became an issue in the wake of an accounting and fraud scandal in a privately equity financed listed jewellery chain.
4. Several sovereign state owned private equity funds where forced to repay debts that they owed
5. The Arab spring destroyed the case for a MENA paradigm in investing. Political risk in Egypt, translated into financial disaster for many private equity financed companies and a bear market in the Arab worlds ultimate growth market.
6. Finally, the banking systems woes in the GCC since 2008 meant acquisition debt finance has become even more expensive and many western banks have slashed credit lines in the region.
The Wall Street private equity is also gripped by a secular bear market. Blackstone, history’s most successful private equity empire lost 85% of its value after floatation in New York at the height of the credit bubble in 2007. The bear market in the GCC and emerging markets mean high priced IPOs and even trade sales are no longer possible. Funds must meanwhile finance loss-making companies in places like Egypt and cut bloated costs in countries hit by the Arab spring. Fundraising for new funds is virtually impossible and LP family offices have reneged on capital calls. The bear market in the MENA private equity will continue.
1. Oil prices plunged from $148 to $40 in six months, it became obvious that the gulf would face a decline in growth rates, a credit crunch and an outflow of offshore capital
2. A brutal bear market in the GCC equities gutted investor appetites for IPOs, a classic vehicle for private equity exits
3. Low caliber of regulation, disclosure and due diligence in the region became an issue in the wake of an accounting and fraud scandal in a privately equity financed listed jewellery chain.
4. Several sovereign state owned private equity funds where forced to repay debts that they owed
5. The Arab spring destroyed the case for a MENA paradigm in investing. Political risk in Egypt, translated into financial disaster for many private equity financed companies and a bear market in the Arab worlds ultimate growth market.
6. Finally, the banking systems woes in the GCC since 2008 meant acquisition debt finance has become even more expensive and many western banks have slashed credit lines in the region.
The Wall Street private equity is also gripped by a secular bear market. Blackstone, history’s most successful private equity empire lost 85% of its value after floatation in New York at the height of the credit bubble in 2007. The bear market in the GCC and emerging markets mean high priced IPOs and even trade sales are no longer possible. Funds must meanwhile finance loss-making companies in places like Egypt and cut bloated costs in countries hit by the Arab spring. Fundraising for new funds is virtually impossible and LP family offices have reneged on capital calls. The bear market in the MENA private equity will continue.
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