Carlyle Group head says local firms will lead

DUBAI// Local private equity firms will take the lead in the Middle East and North Africa as the industry’s business model is forced to change due to the global financial crisis, says David Rubenstein, the managing director of The Carlyle Group.

“The world of private equity will change for many years as a result of the credit crisis and slowdown, and the entire industry will come under scrutiny over deals,” Mr Rubenstein told a conference in Dubai. “The Mena region will be affected by these changes in the United States and Europe, though the appeal of the MENA region is expected to increase. Some global players will enter the market, though local private equity firms will be most active.”

He added that private equity in the region would continue to be one of the most attractive market areas for global private equity despite a predicted slowdown in the industry in the next six to 12 months.

The Carlyle Group, a private equity giant, opened an office in the Dubai International Financial Center in Nov 2006 and also has regional operations in Cairo and Istanbul.

While Mr Rubenstein remained generally optimistic about the public’s perception of private equity during these distressed times, he said the most significant question to come out of the financial turmoil was whether or not the basic private equity business model would stay the same.

“It’s not clear whether the basic model we’ve had over the past 30 years, which uses much leverage, can be kept. It will be subject to much change and we’ll see changes in how general partners employ more equity, less debt and longer holding periods.”

The financial crisis has forced a number of hedge funds to collapse and brought down the traditional investment banking model; investors are left wondering if the private equity industry risks being next in line. Although experts surmise that the industry is strong enough to weather the crisis, most agree that the private equity industry will have to adapt.

“The financial world is being transformed in a stunning process; we can expect major consolidations in the financial sector, for one,” said Henry Kravis, a founding partner of Kohlberg Kravis Roberts.

Some firms are actively changing their business models to stay ahead of the curve.
“We are preparing to realign ourselves a little bit to capitalise more on opportunities that will arise as a result; it is definitely not business as usual,” said Zulfi Hydari, the managing director of HBG Holdings.

The opportunities for private equity in the Gulf, however, are becoming more lucrative compared to the US and Europe, and local and global players are confident about deal flow and fund launches over the next year, including Blackstone Group, the US-based private equity firm, which has plans in the pipeline to raise money from the region.

“There are so many wealthy people here and companies that are expanding rapidly and looking to put money in areas of the economy that are relatively small compared to the wealth here,” said Steve Schwarzman, the chief executive of Blackstone.

By Sara Hamdan
shamdan@thenational.ae

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