Middle East funds tilt further towards private markets

Institutional investors across the Middle East are signalling a deeper commitment to private markets as portfolio diversification and income stability rise to the top of allocation priorities, according to industry data and market participants tracking capital flows in the region.

A broad base of investors is already exposed to private assets, with close to nine in 10 holding positions in private markets. More than half are preparing to lift allocations to private equity and private credit, reflecting a shift toward strategies that promise long-term value creation and steadier cash yields amid volatile public markets. Alongside this, public fixed income remains in favour, with a sizeable minority planning to add investment-grade bonds and securitised debt to balance risk.

This tilt reflects a recalibration rather than a wholesale retreat from public assets. Investors are seeking resilience through diversification, blending illiquid growth assets with income-generating credit to smooth returns over market cycles. Private equity remains attractive for its ability to capture operational improvements and sectoral themes not easily accessed through listed equities, while private credit has gained ground as banks tighten lending standards and sponsors seek alternative financing.

The appetite is being shaped by regional characteristics. Sovereign wealth funds, pension schemes, insurers and large family offices dominate institutional capital in the Middle East, and many operate with long-duration liabilities that align well with private-market time horizons. Over the past decade, these investors have built in-house capabilities and partnerships with global managers, enabling them to underwrite complex deals directly or through co-investments. The result has been greater confidence in navigating illiquidity and structuring bespoke exposures.

Private credit, in particular, has moved from a niche allocation to a core component of portfolios. Rising interest rates over the past two years have reset return expectations, making floating-rate private loans attractive for income without taking on public market volatility. Investors are targeting senior secured lending, asset-backed credit and specialty finance, with a focus on downside protection and covenant strength. Market participants note that competition has increased, but disciplined underwriting and sector expertise continue to differentiate returns.

Private equity strategies are also evolving. Buyout funds remain popular, yet there is growing interest in growth equity, infrastructure-linked platforms and sector specialists in healthcare, technology services and energy transition assets. Regional investors are increasingly selective on vintage and manager selection, emphasising operational value creation over leverage-driven returns. Co-investments alongside trusted managers are being used to reduce fees and gain greater control over exposure.

At the same time, the continued appeal of public fixed income underscores a desire for balance. Investment-grade bonds are being added to anchor portfolios with liquidity and capital preservation, while securitised debt offers incremental yield with structural protections. This combination allows investors to manage cash needs while maintaining flexibility to deploy capital into private opportunities as they arise.

Macro conditions are reinforcing these choices. Equity markets have experienced sharp swings driven by geopolitical risks, inflation dynamics and shifting expectations on monetary policy. Against this backdrop, private markets are viewed as less correlated to short-term sentiment, though investors remain mindful of valuation lag and exit risks. The emphasis has therefore shifted to pacing commitments and stress-testing portfolios under conservative assumptions.

Regional capital is also becoming more outward-looking. Middle East institutions are increasing allocations to North America and Europe for scale and manager depth, while maintaining a focus on domestic and regional opportunities that align with economic diversification agendas. This dual approach supports both return objectives and local development goals, particularly in sectors such as logistics, renewables and digital infrastructure.