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Capital Markets

Middle East: Collapsing stock markets boost private equity

Private equity has emerged a clear winner from stock market volatility in the Middle East – a large number of funds were set up as a result. But is there a risk of a bubble developing in this market too? Kathryn Wells finds out.

Abraaj Capital: a broad regional approach

THE STOCK MARKET crash in the Gulf earlier this year provided a clear illustration of the adage that one man’s meat is another man’s poison. When the stock market bubbles of Saudi Arabia and other Gulf states finally burst in May, sending prices diving more than 40%, not everyone was complaining.

The repricing that has taken place has woken investors up to the risks inherent in riding the equity market wave far more convincingly then the financial advisers’ mere words had been doing earlier. While some investors were wringing their hands, private equity fund managers were more sanguine.

Abe Saad, managing director of Shuaa Partners, the Dubai-based private equity arm of regional investment bank Shuaa Capital, says that he has seen a change of attitude from investors since raising his company’s first fund. The firm closed a first $200 million fund in September 2005, which is so far around 40% invested. It is in the process of launching a second fund, for $100 million, that will focus on the Levant region. That fund’s first closing is due in November.

“When we were raising funds for our first fund last year, some investors, especially high-net worth individuals, questioned why they should lock their money into a private equity fund for seven years if they could get 25% profits on the stock market in one day,” says Saad.

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