Ground beneath. Irrespective of whether lessons have been learned or not, there has been no lack of activity on the ground - albeit of a different kind. The entry of Kohlberg Kravis Roberts (KKR), a global alternative asset manager, is a case in point. On May 11, KKR MENA ob-tained a license to operate from the Dubai International Financial Centre (DIFC). Abdulla al-Awar, the managing director of the DIFC Authority, had an interesting welcome note. “Our region is witnessing a deepening of the financial markets,” he said, “and private equity is not only abundant here, but is fairly active.” KKR says it sees a wide variety of attractive opportunities in these markets and “looks forward to capitalizing on its global resources to build an exceptional franchise.”

Within days of this announcement, KKR appointed Ford M. Fraker, the former US ambassador to Saudi Arabia and former chairman of private investment banking firm Trinity Group, as a senior adviser to the firm. There have been several other significant developments. Kuwait’s KIPCO said that if market conditions are suitable, it may launch a PE fund targeting the MENA in 2009. Istithmar World Investment Management (Dubai) has also been granted a license to provide investment management services focusing on private equity and alternative investments from the DIFC.

At the same time, stakeholders are brainstorming to revive the fortunes of their industry . The Dubai Financial Services Authority (DFSA) said in March that it wants the DIFC to consider establishing the Gulf’s first PE secondary market where holders of non-listed equity can sell or transfer their investments. DFSA chief executive Paul Koster said there is an opportunity to create a “trading facility,” by which PE fund managers “can partially sell an investment” from their portfolios. This would provide the fund manager fresh capital and the new investor an alternative exit strategy to join an investment run by a professional fund manager. “The objective of this proposal is to explore how the DIFC could facilitate non-listed entities in raising capital in a manner where those parties who subscribe into such a capital raising are then subsequently able to reduce and/or exit their investment by way of such a trading facility,” Koster said. Such a move will be significant, considering the UAE accounts for 26 percent of the MENA region’s PE transactions.

Double-edged sword. Bold moves apart, insiders say the biggest challenge for PE firms going forward will be raising debt. It works both ways though, because companies that need to grow and cannot borrow from the banks might seriously look at PE. What’s missing from the equation, however, is an escape route. Even weaker players - who may want to exit deals to grab more liquidity - will find few buyers. Whether they like it or not, they are left with no option but to do value additions so as to make their companies saleable. Some say that reinforces the theory that the markets in the region are maturing and investors are realizing that PE is not a financial gimmick, it is also about growth and expansion.

The message has begun to sink in on that front. Salman Malik, a senior investment manager at Swicorp, says over the last few quarters private equity players in the Middle East have already shifted their focus from “deal origination and execution to post-acquisition management.” He adds that “companies with access to capital today are well positioned to pick up assets at very attractive valuations.” Riyadh-headquartered Swicorp is a corporate finance advisory, private equity and principal investment firm, with $1.5 billion funds under management.

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