The US$23.2 billion (Dh85.21bn) Middle Eastern private equity industry is struggling as fund-raising gets tougher and viable exit options diminish.
About $700 million was raised last year, compared with more than $6bn at the industry's peak in 2007, according to the Mena Private Equity Association's annual report.
Funds under management grew to about $23.2bn last year from about $8bn in 2006, the report said.
"Private equity as an industry is still premature for the region," said Ali Al Shihabi, who recently stepped down as the chairman of Rasmala Investment Bank in Dubai. "It needs a much more legally developed environment in which to flourish."
The region was a hot market for investments until the global financial crisis struck in 2008, followed by the Arab Spring three years later. But the industry has been beset by problems and has struggled to raise capital on one hand and to find viable exit strategies on the other.
The decline of the region's stock markets during the crisis, and their continued losses after last year's revolutions in the region, have also hurt the private equity business and its investors.
"For the model of private equity to work, you need a booming stock market," said Mohammed Ali Yasin, the managing director of Abu Dhabi Financial Services, the brokerage arm of National Bank of Abu Dhabi. "That would give incentive for businesses in the industry to approach private companies and then take them public later on. That in itself, a key exit strategy, is not there any more. It has limited people to exit from those funds consequently leading to a less available pool to distribute to these companies."
Questionable deals have also rocked the industry.
The private equity subsidiary of Egypt's EFG Hermes, in which the former president Hosni Mubarak's son Gamal has an 18 per cent stake, was in May charged with corrupt stock exchange dealings dating back to 2007 over the sale of state-owned Al Watany Bank.
EFG Hermes denied that it "has had any dealings of any form with the former president's family".
Bahrain's $7.4bn private equity investor Arcapita filed for Chapter 11 bankruptcy protection in the United States in March after it was threatened with legal action if it did not pay its creditors.