Does Abraaj’s collapse signal the end of regional private equity? The “spectacular” collapse of Abraaj, seen for years as the standard-bearer for EM private equity, has left a “nuclear wasteland” in its wake, destroying investor confidence in the market and tarnishing Dubai’s reputation, Matthew Martin and Nicholas Parasie argue in Bloomberg. The Dubai Financial Services Authority (DFSA) recently issued a hefty USD 315 mn fine for “serious wrongdoing” and misuse of investor funds, but this may do little to alleviate investor concerns in the long term.

Even before Abraaj went under, private equity in the MENA region was flagging. A 2018 analysis identified a notable decrease in active and sustainable PE funds in the region, starting as early as 2008. Liquidity is proving to be a long-term challenge, affected by a lack of institutional investment and the broader economic environment. But a series of obstacles, including declining oil prices, political turbulence amongst GCC countries, rising interest rates and tough global macroeconomic conditions, have all impacted the sector in recent years. Preqin data shows that eight PE funds with exposure to MENA closed last year with USD 406 mn in aggregate capital raised, down 65% from USD 1.168 bn raised in 2017 and USD 14.283 bn in 2015.

Under-regulation or a lack of due diligence to blame? The Abraaj collapse is increasingly being presented as a cautionary tale of the need for rigorous checks and balances, both from regulators and from investors themselves. The DFSA has been accused of being slow to respond to allegations of wrongdoing, and investors have become hesitant to put money into funds for fear of flaws in the regulatory environment. But investors who jumped onto the Abraaj bandwagon without asking questions also played their part. The Abraaj case “should be seen more as a message about due diligence lapses by investors,” says Sabah al Binali, CEO of Universal Strategy. A Turkey-based PE manager concurs, saying “it was lazy investors who created this monster.”