Recent conversations between BHA analysts and investors in the United Arab Emirates indicate that the flow of capital into private equity and real estate funds from many of the region’s investors will decrease during 2010. Alternately, these investors will focus on more liquid public investments or on direct investments in companies and property.
These observations have emerged from interviews with investment officers of family offices, wealth advisors, and banks in the UAE. For example, a bank in Abu Dhabi that has committed more than $1 billion to single- and multi-manager private equity funds in the past has said that it is fully allocated to these asset classes until 2012. Separately, a family office in Dubai that has traditionally invested in both private equity and real estate funds told BHA that it will not be making any fund investments in these funds until at least 2011. The firm said that if its clients want to increase their exposure to private equity and real estate, it has the expertise to source direct deals.
It is not only private investors that may limit their investments in private equity and real estate funds. An investment officer at a large government investment house commented that he believes that most government pension funds in Abu Dhabi and Dubai are almost out of capital to place into long-term investment funds. He anticipates those that do have capital will invest directly rather than through funds in order to avoid management fees and provide more one-off deals for clients.
In an environment where investors remain concerned about liquidity as well as market instability, fund managers should be mindful of their approach to investors. Many investors, such as those in Abu Dhabi and Dubai, are still feeling the effects of the credit crunch. Additionally, Abu Dhabi is dealing with the bailout of Dubai World, which has affected the local economy. Fund managers looking to create relationships with investors in this region should understand that it will be a lengthy process to regain the confidence and commitments of the UAE’s family offices, wealth advisors, banks, and government pensions.
