Private equity executives from the United States and across the Middle East have descended on Dubai this week to seek out investment partners and deals during one of the most tumultuous periods in the industry's history.
The three-day annual Super Return Middle East conference coincides with extreme volatility in the financial markets and a credit freeze that has only exacerbated the inability of the firms to access financing for leveraged buyouts.
Attendees will be watching addresses from Wall Street moguls such as KKR's Henry Kravis, Carlyle's David Rubenstein and Blackstone Group's Steve Schwarzman for signs of how US private equity will ride out the storm and the investment opportunities they see emerging.
From the Middle East, the focus will be on private equity and sovereign wealth funds, with speakers including some from Dubai government investment agency Istithmar World Capital, which owns fashion retailer Barneys New York; and Saudi-based private equity firm Swicorp, which recently bought a stake in leasing company Jordan Aviation.
Behind closed doors, a flurry of meetings is expected as US private equity executives test for any appetite for further ventures, fund raising and deals from a region that has been burned by investing in the United States.
Some sovereign wealth fund investors have taken stakes in companies whose shares have dived dramatically, as well as faced a hostile reception from critics questioning their political motives.
That has caused concern among US buyout bosses about continued investment in the country.
"Imagine a private meeting in a room far from the US; a decision is quietly made and billions of dollars that were invested here find a new and more hospitable home," wrote Schwarzman in a recent column in the Financial Times. "Or billions of dollars that could have been invested here are reallocated to other more benign markets."
High profile investments have included US bank Citigroup, which in January raised $12.5bn from a private sale of convertible preferred securities to investors, including Kuwait and Saudi Prince Alwaleed bin Talal. Citigroup's shares have already lost about half their value this year.
Other investments include Abu Dhabi buying a $1.35bn stake in Carlyle Group in September 2007 and Dubai taking a $1.26bn stake in US hedge fund Och Ziff Capital Management Group in October 2007 before it went public, priced at $32 a share. Och Ziff shares have lost about 80pc of their value since then.
Middle East investors bought $42bn worth of US assets last year and have spent $14 bn so far this year, data from Thomson Reuters shows.
That vastly outweighs funds flowing the other way, with $1.4 bn invested last year by US firms buying Middle East targets. Private equity investments in the Middle East by US firms total just $652m so far this year.
In addition to buying direct stakes in companies, sovereign wealth funds have invested in private equity funds.
A report earlier this year from London-based Private Equity Intelligence,estimated they have up to $150bn committed to private equity, equivalent of up to 10pc of the global total capital available to the industry.
But the Middle East has not escaped the global financial crisis. Gulf stocks have slumped as speculation intensified that a five-year property boom is over and developers could be forced to merge as financing conditions deteriorate.
US buyout firms are grappling with their own issues.
In addition to an inability to finance deals, they are struggling to get their portfolio companies though the downturn. Some of the deals struck during the leveraged buyout boom of 2005-2007 look increasingly worrisome, bankers warn.
There are fears that deals struck during the boom will yield lower returns, having a knock-on effect on the ability of private equity firms to raise more funds.
Other concerns centre around alternative investments buyout firms have made, such as buying huge quantities of leveraged buyout loan debt.
The market crisis comes at an inopportune time for KKR and Apollo Management, which have said they plan to list on the New York Stock Exchange in the near future.
With rival Blackstone's shares trading at less than a third of their 2007 IPO price, going public may not be such an appealing prospect. (Bloomberg)