2008 will be year of opportunities amid global and regional challenges. The impact of the global downturn in the next few months will be difficult for all financial players, including private equiteers operating in MENA. A sober market will slow the investment cycle, bringing valuations down, but lower valuations will yield higher returns for PE funds over the long term.

More risk-averse and better educated investors will make fund raising more challenging, but for those who already delivered returns and gained the trust of investors, tapping into the regional liquidity will be less strenuous. The global slowdown will drive global fund managers to come into the region, in one form or another, creating competition in the short term, but better industry practices over the long run.

In such a perplexing environment, I foresee 10 trends emerging.

1. PE investments will increase, and expected to surpass 2007 investments of $3.3 billion. With increasing privatisation of public entities and the restructuring and recapitalisation of family businesses, the billions raised in previous years will be deployed in more and larger transactions.

2. The number of opportunities will slightly increase, government enterprises are not being privatised fast enough, and families are maximising the value of any business they are divesting, and taking maximum advantage.

3. Fund raising will probably be around the $6 billion mark attained in 2007. Petrodollars, corporate profits, and individuals’ wealth will be channeled into all sorts of regional financial assets, especially given the weakening performance of other regions.

4. The gap between existing successful managers and want-to-be managers will widen. In 2005, funds were raised on promises with limited relevant track record. In 2008 and after more than 40 exits, funds will be raised based on established track record. In 2007, established managers found it relatively easy to raise their second fund, but most new managers struggled.

5. Egypt and Saudi Arabia will be attracting far more attention in 2008 than in previous years, and will share the lead with the UAE. In the past, UAE was the leading destination for PE investments. Egypt took the lead in 2007. The largest two transactions in MENA region were in Egypt, and Saudi Arabia is climbing quickly in the league table.

6. Initial public offerings were the only liquidity route foreseen for PE investments. However, there is an increasing number of trade sales, and an increasing acceptance of secondary sales. Today, the full menu of exit options can be contemplated, and with the additional relaxation of restrictions on foreign investments, a larger pool of foreign trade and financial buyers will be available.

7. Many global managers will be eyeing the region for an entry. Some, like Investcorp and Carlyle, have taken the plunge with a dedicated regional fund. Others, like 3i and Credit Suisse, are partnering with regional firms. But with the slower pace of closing deals in US and Europe, the global PE machines will be eying MENA region more aggressively.

8. PE investments will slowly shift from building the infrastructure to consumption sectors. In the past few years, and probably in the next couple of years, the focus was and will be on building power plants, water plants, ports, airports, buildings and so on. By 2010, the investment cycle will be reaching its peak, and wealthier families will be boosting consumption. Smart PE houses will start investing in consumer related sectors from now.

9. Most of the transactions so far will be smaller than $50 million. But this benchmark is rising, albeit slowly. Do not expect too many billion dollar deals in 2008.

10. More talent will be coming to the region, as layoffs increases in the West. However, it will take time for it to come here.

Imad Ghandour is executive director of Gulf Capital and chairman of the information and statistics committee of the Gulf Venture Capital Association.