PE bigwigs meeting in Dubai, raising money a focus

By Megan Davies

NEW YORK (Reuters) - As the top dogs of private equity gather in Dubai next week for one of the industry's biggest events, the priority will be raising and retaining money from investors in the Middle East rather than spending it in the region.

Just three investments have been made in the Middle East by private equity firms from outside the region so far this year, according to data from Thomson Reuters, and the aggregate value of those is negligible.

That's a stark contrast from the previous four years when there was a total $4.8 billion invested.

Still, the amount invested by Middle East sovereign wealth funds in private equity funds remains high, with 69 percent of SWFs in Middle East and North Africa invested in the asset class in October, according to a report from London-based research firm Preqin, up from a 63 percent estimate in April.

On Monday, private equity chiefs from the world's biggest firms, such as Blackstone Group's (BX.N) Stephen Schwarzman, Carlyle Group's CYL.UL David Rubenstein and Providence Equity Partners' Jonathan Nelson, convene in Dubai for one of the major industry conferences of the year, Super Return Middle East.

They'll join leaders of funds and banks such as Cairo-based private equity firm Citadel Capital; Saudi-based private equity firm Swicorp and Dubai-based Abraaj Capital.

Looking for new investments in a region hard hit by the global economic downturn after a boom fueled by higher oil prices isn't a priority. Much more time will likely be spent appealing for new funds and trying to keep existing investors happy.

"The primary focus of most of the U.S. groups in the Middle East has been on the region as a source of capital," said Josh Lerner, a Harvard Business School professor specializing in private equity. "It may change, but I don't think it will change overnight."

Still, promising high returns on new buyout funds has become a tougher sell for U.S. and European private equity shops, which have taken writedowns on their portfolios and seen some failures of companies they own. Attracting money for new funds may not be as easy as it once was.

"The last year has not been a pretty one for many of the sovereign funds," said Lerner, who is speaking at the conference. "My guess is that we'll probably see more focus on more emerging economies as opposed to necessarily investing in the U.S. or Western Europe -- driven partially by anticipation of where the most attractive opportunities are likely to be."

As well as having sovereign wealth funds as investors in their funds, some private equity firms have them as stakeholders. Abu Dhabi bought a $1.35 billion stake in Carlyle Group in September 2007, and Blackstone has China Investment Corp as an investor.

STILL CASH RICH

But despite continued strong interest caution reigns, and the types of investments are changing.

One U.S. investor, who declined to be named, said very few SWFs in the Gulf emirates are making commitments to private equity funds currently.

That investor, however, said the attitude is more positive for making direct private equity investments and co-investing alongside PE funds, which gives them the ability to conduct due diligence on assets.