The co-founder of private equity firm Carlyle Group said yesterday economies in the Middle East were proving to be resilient in the face of the world financial crisis and sustaining growth from non-oil sectors such as real estate and infrastructure.
"Oil price declines are significant but not disastrous. Economic growth in the region is being sustained by other non-oil sectors like infrastructure and real estate," David Rubinstein told a Dubai conference.
"GCC government budgets are intact unless the oil price falls below $50 a barrel," Rubinstein said.
Oil prices have dropped by about $70 in the past three months after hitting a high of more than $147 a barrel in July.
Rubinstein said he expected a slowdown of investments in the Middle East and North Africa (Mena) region but private equity to continue playing a key role.
"Investment activity in the Mena region will slow down but the appeal wil increase because of the relative stability in the region. Private equity in Mena will moderate but become stronger," Rubinstein said.
"We will see some new global players entering the market but the local players will dominate," he said, adding that regional sovereign wealth funds would pay more attention to markets closer to home.
The ongoing world economic crisis will have a lasting impact on the private equity industry, Rubinstein said. "The world of private equity will change for many years as a result of the credit crisis and the unfolding economic slowdown."
Rubenstein said he saw great opportunity to invest in financial assets affected by the credit crunch, and said the US government's actions could help free up availability of leveraged buyout debt in the coming months.
Private equity firms have been hammered by the lack of availability of financing for leveraged buyout deals and have largely been waiting on the sidelines for debt markets to return to some normality. Governments around the world have been trying to restore confidence in the battered banking system and markets. The United States said on Tuesday it was injecting $250 billion into US banks to keep fear from swamping the US economy.
Rubenstein said on the sidelines of the Super Return private equity conference in Dubai that the US government's actions to boost liquidity in the system could have the affect of freeing up leveraged buyout debt, but stressed it was too early to really know the impact.
"My guess is the system will probably free up and within a few months you'll begin to see buyout debt more readily available than it has been in the last nine months or so," he said.
Washington-based Carlyle is one of the world's largest private equity firms with more than $89.3bn under management and investments in companies such as fast food chain Dunkin' Donuts, semiconductor firm Freescale Semiconductor and pharmacy chain Alliance Boots, its website showed.
The financial crisis and hard knocks to the economy has put stress on some of Carlyle's portfolio companies, Rubenstein said.
He said Carlyle had gone through every company in its portfolio to make sure they had adequate credit lines and were prepared for a slowdown.
"I wouldn't trade my portfolio for anyone else's," Rubenstein said. "I'm very happy with our position. Some companies are stressed but generally I think we're in very good shape."
Rubenstein said the US has probably been in recession for a couple of months and predicted it could come out of recession by the second quarter of next year.
Rubenstein said the financial services sector was a very attractive investment opportunity right now.
He said financial institutions like banks and insurance companies seeking to sell assets are probably going to sell them at distressed prices.
Some smaller banks and financial service companies that need equity injections could also be attractive, Rubenstein said.
"Right now there's an enormous opportunity for private equity to get into the financial service industry and invest in banks, insurance companies, other organisations that are heavily hit ... by the credit crunch," Rubenstein said in a speech at the conference.
He said private equity has longer-term capital and can strengthen the balance sheets of firms or recapitalise them.