Private equity fundraising in the Gulf: a new opportunity?

Private equity fundraising in the Gulf reached $6.4bn last year, according to a new report from the Gulf Venture Capital Association. That's up 10 per cent from 2007 and over double what it was in 2005, according to a press release put out yesterday.

This is a big story, but not for the obvious reasons.

The obvious story is this: While a lot of money was raised in '08, given the financial crisis, private equity fundraising is going to be a lot tougher this year - or so I hear from PE sources in Dubai. The GVCA acknowledges as much in its report, saying PE fund managers only managed to raise 16% of their announced fund target sizes in 2008. That's down from raising 65% of announced fund sizes in 2005.

But the real story here isn't that fundraising is getting harder. It's that a lot of fundraising has gone on in the Middle East's nascent private equity sector in the past few years, but not too much of the money has actually been spent. After they raise money, it typically takes private equity managers a good while - several years, in some cases - to find deals and make decisions on where to invest.

In a great stroke of luck, the feverish fundraising that happened during the boom times in the Gulf, coupled with PE managers' slow investment processes, could end up being hugely beneficial to the region's private equity funds. They are sitting on huge piles of cash at a time when asset prices are down everywhere and when many private businesses are looking to sell at distressed prices.

Low prices and lots of cash to spend: now that's a recipe fund managers of any stripe would relish.