Is Private Equity Interest In the Gulf Region Waning?


November 10, 2014

The Gulf region has long been a growing market for private equity and financial advisers around the globe have flocked to the region. But a recent Insight Discovery report shows that the scene might be changing, as more financial advisers are planning to leave the region.


According to the report, only 57% of the advisers in the region feel they are rooted to the Middle East for long-term. The figure has dropped significantly from last year’s 65%. One of the reasons behind the change is thought to be in the slow down of private equity investment in the region.


Findings of the Study
Insight Discovery surveyed 236 independent financial advisers as well as wealth managers in the Middle East. These advisers and managers were locally located in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.


The study found that more than one third of financial advisers are thinking about leaving the region. Long-term aspirations to stay in the region have waned in recent months and much of this is due to increasing living costs, which not only makes it more costly to live there for the advisers, but also the inflationary pressure makes it difficult to advise clients.


Problem of Inflation
The region has seen soaring inflation in the recent months. Inflation figures in the United Arab Emirates, for instance, are currently running at 2.9%, while last year during this time the figure stood at 1.3%.


In a Financial Times interview, Nigel Sillitoe from Insight Discovery said the cost of living “is widely seen as a major challenge for advisers”. Whereas the region used to provide luxury living for relatively little costs, cost of living is now increasing and salaries can’t keep up.


Difficulties of Investment Activity
This also poses a threat to private equity activity in the region. This is because local financial advisers have historically played a crucial role in equity investment, which used to provide lucrative capital growth opportunities for clients.


But the recent strong stock market performances have meant that private equity has found it difficult to land deals around the globe. Strong stock market conditions, especially in the US have meant that companies are more interested in seeking listing than private equity.


Just recently, Carlyle shelved its Middle East fund plans. At the time, it told investors appetite is waning because of the unrest in the region. The Financial Times also said investment atmosphere is difficult because “the vibrant markets of the Gulf have not generated the expected deal flow and could be affected by falling oil prices”.


Dissident Voices
But not everyone agrees with Insight Discovery’s findings. Akber Khan from Al Rayan investment believes that financial advisers won’t have a real relevance to the private equity industry as a whole. He said in Financial Times that, “around $7bn has been invested since the start of 2013 by international investors including sovereign wealth funds, large pensions funds and global asset managers that see the GCC as a thriving, dynamic region”.


Furthermore, Business Week recently argues that the region is providing private equity with fruitful investment opportunities, as PE deals in Europe and the US have slowed down this year.


It’s still unclear how much damage decreasing financial adviser confidence in staying put locally in the region would do for the private equity markets. Local connections are always essential, yet the growth available in the region might just be enough to lure in new talent, as well as investment.

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