Dubai: Brookfield Has Billions Riding on Middle East Private Equity Revival - BloombergFirst came the Wall Street
banks and then the global hedge funds. Now, a wave of private equity firms led by New York-based Brookfield Asset Management are also setting their sights on the oil-rich Middle East to spur deals and profits.
While this month’s dramatic plunge in crude prices highlights the
risks of a region that’s reliant on oil revenues, they’re intent on investing in economies where vast government diversification drives have fueled a financial boom.
Brookfield has become one of the biggest foreign investors in the Middle East by building a private equity portfolio of $8 billion and amassing infrastructure and real estate assets worth $5 billion. It intends to raise at least $2 billion for a Middle East-focused fund — the biggest of its kind — while weighing a string of new investments. Other heavyweights including Warburg Pincus LLC and General Atlantic LP are also expanding in the Gulf.
It’s a region that can be hard to crack. Oil’s recent drop to below $65 a barrel is likely to force some governments to weigh spending cuts. Just a few years ago, fundraising had dried up in the Gulf amid the collapse of the local investment giant Abraaj Group. And more than a decade ago, Carlyle Group Inc. faced challenges in the Middle East amid currency devaluations in some countries.
Still, the lure of the Gulf’s newly-ascendant economies has proven irresistible as high interest rates have hampered leveraged buyouts globally over the past year. More recently, the
market turmoil fueled by US President Donald Trump’s
tariffs has dashed hopes for a deals resurgence that many private equity firms were counting on to exit long-held investments. All that’s made the Middle East a more important source of liquidity for these asset managers.
“The Middle East means emerging market returns with developed market risk,” Jad Ellawn, who heads Brookfield in the Middle East, said in an interview. “That is the attraction. You don’t find that anywhere else.”
The moves by Brookfield and other private equity firms have already begun driving a resurgence in a regional industry that lay dormant for years after Abraaj collapsed in 2018 as a
probe found it had misused investor money.
The number of private equity deals in the Middle East have nearly tripled from a decade ago, and assets under management have nearly doubled, researcher Preqin says. The investments mark a sharp change for a region that foreign firms had mainly seen as a source of funding in earlier years. Increased PE activity has the potential to further fuel
deal volumes in the region, where Bain & Co. estimates overall M&A activity already touched $29 billion last year.
The Gulf can be a volatile place to invest in, with sharp boom and bust cycles. As recently as 2019, the region’s economies were in the throes of a slump driven by declining crude prices.
But a big bounce back in the price of oil around 2022 padded state coffers and fueled a sharp turnaround even as other economies were reeling from the pandemic. Progress on bankruptcy laws and immigration rules are now making foreign investors more comfortable. Massive privatization drives and investments by governments to diversify away from crude are offering a new source of private equity deals.
Home-grown companies have begun maturing, making them more attractive for foreign buyers. And an IPO market that has run red hot has opened the door for private equity firms to list companies at a profit.
KKR & Co. recently
announced a major investment in a Gulf data center and said it would help spend $5 billion to expand that. CVC Capital Partners Plc, Ardian SAS and others have moved people to the Gulf, spending considerable effort to forge ties with regional entrepreneurs and family conglomerates. They are complemented by a slew of local firms from Gulf Islamic Investments LLC to Saudi Arabia’s Jadwa.
The big shift has been that foreign firms “are actually investing in the region,” as opposed to tapping its vast sovereign wealth, said Huda Al Lawati, founder and chief executive of Aliph Capital, an Abu Dhabi-based mid-market PE firm.
In recent days new challenges have emerged.
Fears of further pressure on oil prices have roiled the Gulf’s main stock indices. The risks are particularly high for Saudi Arabia, the region’s largest economy, which needs oil at close to $110 a barrel to balance budgets. Crude’s decline raises the possibility of much tighter outlays by governments and more curbs on investments by sovereign wealth funds that have poured money into local and international deals.
So far, Brookfield has benefited from investing in the Gulf when others were hesitant, entering the market before many of its rivals. In 2015, Chief Executive Officer Bruce Flatt was on one of his regular pilgrimages to the Gulf where the firm was backed by some of the region’s big wealth funds. Anuj Ranjan, who today leads the firm’s sprawling private equity empire, was along for the ride. Before they landed, Flatt had already sent out an internal memo: Brookfield would be establishing an investment office in Dubai.
Bankers say Brookfield is seeing payoffs from being an early mover. Ellawn has steadily amassed a vast network of connections in a region where relationships are the cornerstone of all dealmaking. These days, he nurtures the firm’s relationships with key deal-makers, including executives at Abu Dhabi’s largest bank, sovereign wealth fund Mubadala and asset manager Lunate. Meanwhile, Toronto-based parent Brookfield Corp. has a member of Saudi Arabia’s powerful Olayan business family on its board of directors.
In Dubai, Ellawn can regularly be seen striding between meetings through the financial center, where the Gulf’s economic confidence is on full display. The hub’s tall towers are brimming with Wall Street bankers and lawyers on the prowl for their next deal, and the highest floors offer an unobstructed view of the construction frenzy taking place in the emirate.
Brookfield has had some early successes, and says it focuses on assets that form the backbone of the regional economy. Its ICD Brookfield Place tower, which opened during the pandemic in Dubai, now has almost 100% occupancy as hedge funds landed and global banks expanded in the city.
Meanwhile, the new expats who arrived have driven surging demand for schools. GEMS Education — which Brookfield has invested in — is doing brisk business and preparing to launch one of the world’s most expensive schools
charging $56,000 a year.
A cross-border consortium of investors put money into GEMS. It included Gulf Islamic Investments, Marathon Asset Management and the State Oil Fund of Azerbaijan.
“We’ve proven that the ingredients for a successful private equity environment exist,” Ranjan said. “And I do think our peers will show up.”
France’s Ardian opened its Abu Dhabi outpost in 2023. Warburg Pincus is moving a dealmaker to Dubai while Permira Holdings LLP is looking to open an office in the emirate. Top executives from Blackstone Inc., General Atlantic and Carlyle frequently attend the biggest financial conferences in Riyadh and Abu Dhabi.
Beyond oil prices, geopolitics can often weigh on sentiment in the region. Also, while capital markets have been on a tear in recent years, private equity exits through initial public offerings remain rare in the Gulf. Valuations can also swing widely as company owners are reticent to sell.
Governments across the Gulf have been pushing firms to make the region an investment destination on its own merit instead of an easy source of cash to the rest of the world. That’s inherently challenging, though, when the state-backed sovereign wealth funds wield enormous firepower, meaning there’s strong competition when it comes to sourcing local deals.
The experiences of other international firms also show how hard it can be to win in the Middle East. Carlyle raised $500 million for a Middle East fund in 2009, and although that performed well it didn’t go on to start another. There was a shortage of sizable deals at the time as well as currency swings in Turkey and Egypt. There were broad concerns about corporate governance in the region, and it was another choppy period for the Gulf because of lower oil prices.
Carlyle continues to have half a dozen people on the ground in Abu Dhabi, mostly focusing on fundraising while the group also looks opportunistically at deals in the region.
More recently, the outlook for the region has looked vastly different because of economic reforms, and in February the research firm Magnitt predicted that private equity in the region was positioned for a rebound.
“It’s a golden decad
e,” for the Gulf, Ellawn said.
