Private equity experts strike a very bearish note at Dubai conference
Posted on 12 September 2011 with 4 comments from readers
The modest IQPC Private Equity MENA Business Summit opened in Dubai today in association with CNBC Arabiya with practitioners striking a very bearish note in their remarks about the market.
‘The end is not in sight, we don’t know how much things will get worse or whether this will last a lot longer,’ commented one panel member. ‘We were all hoping 2011 would be better but it has not turned out that way.’
Arab Spring
Indeed the Arab Spring has come as a nasty shock to the private equity sector. Deals have gone on hold and not much has been closed in the year. Instead private equity firms find themselves trying to enhance the value of their existing investments, some of which they now regret.
Regional private equity saw an influx of cash in 2006-7 when the volume of investment rose ten-fold. But it has been struggling to deploy that money into high-return investments ever since and many promising investments have turned sour along with the global economy.
It is a question of putting a brave face on the prospects and surviving for better times. But private equity practitioners are always worth listening to because they combine down-to-earth realism with entrepreneurial flair. They can also spot the next hump on the road.
‘Inflation is coming within six to 12 months,’ said another contributor to the debate. ‘Gold and real assets will be the best things to own then’.
Depressed US and EU
However, the economic outlook in the Middle East and emerging markets may still be better than a ‘depressed US and Europe’ noted several participants at the conference. The thinking is that money printing will fire up inflation and raise commodity prices like oil, and that will boost the cash flow of the Oil States.
‘The region also does not have anything like the fiscal imbalances or debts of the US, Europe or Japan,’ they contended. However, the general view was that defensive sectors like health and education would emerge ahead of real estate where oversupply will depress the outlook for some years.
On the other hand, business valuations are more attractive to private equity funds than they have been for a decade and there is always an finely tuned opportunism about this sector that can be relied upon to break through a bear market the moment that becomes economically viable.
4 Comments posted by readers:
China may bail out Italy in exchange for Chinese control of the ENI oil company. China might end up owning, whatever is worth owning, of Europe in 10 years.
I wrote that such a thing would happen on this forum a few months ago.
The Chinese communist government will go after control of any, and all, private oil companies that they can. Once they gain a controlling interest, look for China to get priority for future oil shipments. The Communists have a long range plan. The West doesn’t.
Deflation may soon overwhelm ineffective global “money printing” and base commodities like oil can perform very poorly indeed in an atmoshere of negative growth, defaults and deleveraging in the still huge, “advanced” economies.
LOL–The Soviets had a long-range plan, too!
Comment by Bill near Slidell “The Communists have a long range plan. The West doesn’t”.
The Chinese may have a long term strategy to buy whatever remains of value in the EU but they will pull out as soon as those assets do not deliver what they expect.
Volvo is already owned by the Chinese and the Greek shipping empire is also substantially in Chinese hands, now Italian industrial and Energy know how is due to be acquired by a buy out of ENI.
Until western and in particular European governments impose a “reciprocal” arrangement upon the Chinese, enabling westerners to buy real estate, property and other fixed assets in China, then I would advise them to invest in the middle east.
If China gets a foothold there, and the Chinese are already aligning their medium term strategy for grabbing the ME oil/energy resources, then we are all doomed.