GCC private equity sector held back by lack of competition

• Investment banking sector is small, says Gulf Capital’s Karim El Solh 
• Few intermediaries makes it hard for PE firms to source deals
• Gulf Capital set to launch fourth fund that would boost AUM to $3.4bn

The GCC private equity industry is failing to reach its potential because of a lack of competition and a scarcity of local investment banks to help in dealmaking, according to Karim El Solh, chief executive of investment firm Gulf Capital.

He believes a more mature investment banking industry would bring more players into private equity and boost investment flows.

“The Gulf’s investment banking industry is very nascent, small and shallow,” El Solh told AGBI. “If there was a more vibrant financial ecosystem, with a more developed investment banking industry, it would help all the players [in the private equity space].”

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Many big global investment banks closed their regional operations in the years after the financial crisis as a result of low liquidity, and have yet to re-establish a presence. 

“Right now, the bankers fly from London or New York to service the industry and there is not enough commitment,” said El Solh. “There are a couple of small investment banks based here, but they are few and far between.” 

These include De Novo, Arqaam Capital and FAB in Dubai and Emirates NBD’s investment bank arms. Fajr Capital is a smaller homegrown private equity firm. Swiss bank UBS closed its investment banking arm in Dubai last November, opting to service the Middle East from abroad. 

That does not mean investment appetite or investable opportunities in the region are low – far from it, El Solh said. But it presents challenges for deal makers. 

“As the market is not intermediated, no-one is showing us [propositions], so we have to go and source, structure and package our own deals, which is very time consuming.”

However, according to alternative assets data provider Prequin, private equity investors ploughed $14 billion into a record 64 Middle East-based buyouts in 2022, continuing “a steady rebound since the pandemic”. Before that, Mena private equity fundraising had been declining since a peak of $11 billion in 2009, consultant Mercer has said.

In 2018, the industry was shaken by the collapse of Abraaj Capital – once touted as the region’s biggest PE investor – following investigations into alleged mismanagement of money. Creditors were left with more than $1 billion owed. Founder Arif Naqvi this week lost an appeal to challenge his extradition from the UK to the US to face criminal charges.

Gulf Capital is the biggest GCC private equity investor, with $2.4 billion of assets under management. It has launched three funds since 2006, with the third being 90 percent invested and due to close soon at $750 million, and a fourth due to launch this year. Priority sectors include tech and fintech; healthcare and healthtech; business services; consumer, and sustainability. 

In February, Gulf Capital merged a portfolio IP company, Middle East-based CWB Group, with Bulgarian firm Petoševic. Last November, it sold its 100 percent stake in one of the Gulf’s biggest food suppliers, Chef Middle East, to Nasdaq-listed The Chef’s Warehouse for $100m. Three more exits are planned in 2023. 

Gulf Capital was this week awarded a full asset management licence from Abu Dhabi’s financial services regulator.