A increasing number of private equity firms are setting up offices in the Gulf. They aim to strengthen their connections with wealthy sovereign wealth funds and families in the region, as funding for buyouts is becoming scarce in other places, according to Reuters.
As per the reports, in the past, buyout groups would raise money in the Gulf to invest in other regions. However, now they are focusing on building local teams, investing in local businesses, and supporting the development of the region’s asset managers, private equity funds and advisers.
According to research firm Prequin, funding in alternative investments globally plunged 21 per cent to USD 972 billion in the year to 1 November from the same period a year earlier. The rising interest rates have pushed up the return investors can make in rival asset classes such as bonds.
As Gulf funds become more important, it is encouraging private equity firms to invest locally in preparation for a future with less reliance on oil. This includes diversifying into other energy sources like hydrogen, strengthening state-owned companies, attracting foreign investment and creating employment opportunities.
Canadian asset manager Brookfield recently opened an office in Riyadh and plans to open another one in Abu Dhabi. European buyout groups Tikehau Capital and Ardian also opened offices in Abu Dhabi this year, while CVC opened an office in Dubai last year.
In another development, Saudi Arabia has announced a deadline of January 2024 for foreign firms to establish their regional headquarters in Riyadh if they wish to secure government contracts, according to the country’s finance minister, Mohammed Al Jadaan.
Furthermore, Saudi Arabia’s privatisation efforts, covering various sectors from soccer clubs to flour mills, are giving foreign investors access to prime assets that were previously not available.
While most of the deals have focused on infrastructure, such as oil and gas pipelines and real estate, private equity firms are also exploring opportunities in the energy transition, including hydrogen and carbon capture technologies, as governments aim to achieve their net-zero emission targets.
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