Ithmar Capital: Region to witness continued growth for private equity in 2008

Speaking at the conference, Faisal Juma Belhoul, Founder and Managing Partner of Ithmar Capital, added that the expected growth in private equity in 2008 is also due to the GCC's buoyant economic landscape and the rising international interest in the region.

"Revenues from record energy prices have driven liquidity levels to over $1.5 trillion, regional GDP growth is expected to continue to rise and economic restructuring is gathering pace," said Belhoul.

"Of particular importance are the rising numbers of privatisations of state-owned assets, as GCC governments look to address shortfalls in infrastructure financing and increasing pressure on public services. Interest in the region is also increasing from international firms who are aware that the GCC markets are not yet dominated by one single player and are looking to hedge risks and compete in an increasingly globalised market."

Belhoul also identified a number of issues which initially, could restrict the GCC's private equity sector from reaching European-style heights. These issues include uncompetitive exit markets, inconsistent and often restrictive regulatory regimes, underdeveloped human capital and management pools and strong investor interest in government-owned infrastructure resulting in a reinforcement of existing market segmentation, restriction of technology development and overall limiting of economic diversification.

"If these issues can be successfully addressed, the GCC has the potential to become a truly global player in the private equity industry," said Belhoul. "Particularly since the high proportion of private companies in the region, in comparison to the more significant numbers of public companies in the West, means that private equity in the GCC can perhaps be considered as a main-stream asset class rather than an alternative investment."

Re-engineering of family businesses also holds out industry growth potential. According to Belhoul, the operating environment of family businesses in the GCC is rapidly changing. Strong economic conditions have led to cash-rich conglomerates looking to grow and expand both domestically and, increasingly, outside their home markets. The reverse is also beginning to happen, as international businesses move into the region attracted by ongoing economic liberalisations of previously protectionist structures and strong growth markets.

"The result of these outward and inward flows can be summarised in a single word - competition. Family businesses, perhaps for the first time, have to compete both abroad and at home," concluded Belhoul. "Businesses which can generate superior profits, as family firms in the GCC undoubtedly can, are always likely to attract investor capital."

An in-depth study of the impact of private equity on GCC family businesses has been produced as part of the Ithmar Capital/Dow Jones thought leadership report series on the regional industry.