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29 February 2024

Wealth funds and private equity to join forces

By Ryan Harrison



Sovereign wealth funds and private equity firms have pledged to work as partners to capture the Middle East’s booming buyout market, top industry executives said.

Speaking at the Super Return Middle East conference, Kenneth Shen, head of Strategic and Private Equity at the $60 billion (Dh220bn) Qatar Investment Authority (QIA), said private equity firms will increasingly be seen as business partners and not direct competitors.

“Sovereign funds will increase their focus on alternative assets, and more partnerships between groups such as QIA and some of the private equity firms and the hedge funds,” he said.

“Not so much co-investor type activity, but perhaps true partnerships. Because I believe that organisations like ours would not be competing directly with the private equity firms, but that there’s a wonderful opportunity to work in partnership with those groups.”

Shen said sovereign wealth funds could participate in broader parts of the capital structure.

“Influence and size of these wealth funds will continue to grow. And on the back of trades, such as the Citigroup investment by Abu Dhabi Investment Authority, there will be significantly more trades in future and some of the anxiety will lift.

“The key difference between our organisation and the typical private equity fund or hedge fund is our time horizon. The QIA’s own liability profile is 125 years or the depletion of the natural gas reserves in Qatar. We are not driven by artificially mandated acquisition or liquidity events,” Shen said.

David Rubenstein, co-founder and managing director of the Carlyle Group, the largest private equity firm in the world, said he came to Dubai looking to set up partnerships with groups such as sovereign wealth funds rather than just investors.

“We are interested in developing transactions in the region and the best way to do that is to find good partners and getting to know people who are not just investors. Our focus is not so much on raising money as finding transactions for groups that invest here.

“The Middle East and North Africa region is extremely attractive because of the growing wealth, a large percentage of which is being kept in the region. Plus there’s a large population and strong GDP growth and leverage is not as much of a factor here in doing transactions. There are less private equity companies here than other regions so there’s somewhat less competition.”

Rubenstein predicted that sovereign wealth funds would ramp up their in-house private equity activity and that private equity firms will align themselves more closely with more long-term capital partners in future.

There are 181 private equity funds in the world with more than $1bn (Dh3.67bn) under management, compared to five in 1989.

The top seven sovereign wealth organisations control each in excess of $100bn (Dh367bn), some as high as $700 bn (Dh2.57 trillion).

Collectively the leading 20 sovereign wealth groups are estimated to control an aggregate of $2trn (Dh7.34trn). This is estimated to rise to $10trn to $15trn (Dh36.72 to Dh55.08trn) in 10 years.

Nemir Kirdar, founder president and chief executive of Investcorp, said: “Portfolios of any large-scale international investor will most probably have an allocation of private equity, in addition to their other diversified traditional investments.

“Large investment funds such as sovereign groups who have had happy experiences with higher returns of private equity will continue to invest in this attractive asset class. Companies seeking capital will continue to see the benefits of private equity because of lower compliance costs, more responsive and faster decision making and focus on the longer term. This relieves the pressure that comes from having to report quarterly results to the market.”

Between 1991 and 2006 private firms created $430bn (Dh1.5bn) in profits to investors. Institutional investors in the US controlled $24trn (Dh88.1trn) of which several hundred billion were allocated to private equity.

Kirdar said: “There is still ample room for much more to be allocated to private equity as an asset class.”

Despite this, Arif Naqvi, vice-chairman and CEO of Abraaj Capital, issued caution for global private equity firms looking to work with sovereign wealth funds to invest in the region. “We are going through a massive transition in this region, and I know private equity firms have come here looking to do things with sovereign wealth funds, but the reality it that our sovereign wealth funds do very little in this region, if next to nothing.

“They have been set up to diversify oil wealth away from the region and look at investment opportunities elsewhere in the world.”


The stats

Top 7 - The top seven sovereign wealth organisations control each in excess of $100 billion, with some as high as $700bn.

Collectively the leading 20 sovereign wealth groups are estimated to control in aggregate of $2 trillion. This is estimated to rise to $10trn-$15trn over the next 10 years. The global annual GDP is $50trn.

Total assets under management globally are $40trn.

Pension funds globally control $20trn. Bank assets are estimated to be $60trn. Equity market capitalisation around the world in aggregate is $50trn. Sovereign and non-sovereign debt aggregates is in excess of $60trn.

Private equity accounts for:

- $700bn of investor capital globally

- 20 per cent of global mergers and acquisitions activity

- 60 per cent of initial public offerings in the US

There are 181 private equity funds around the world with more than $1bn under management, compared to five in 1989 4,000 buyout deals where completed by the private equity industry in 2006.