Private equity value creation in the Middle East: The role of sovereign wealth funds and engineering strategies

The Middle East has emerged as a dynamic region for private equity (PE) investment, driven in large part by the growing involvement of sovereign wealth funds (SWFs) as both investors and co-investors. This study examines how SWF participation influences value creation in PE deals, with a particular focus on the Gulf region and Oman. We integrate perspectives from Agency Theory, the Resource-Based View (RBV), and Institutional Theory to build a conceptual framework in which SWF capital and strategic oversight interact with traditional PE “engineering” strategies (financial, operational, and governance improvements) to create value. Using a mixed-methods approach, we analyze a sample of 60 PE transactions (2015-2024)-half involving SWFs-and assess outcomes in terms of financial performance (IRRs) and operational growth (revenue and margin improvements). We supplement quantitative analysis with case evidence from recent SWF-backed deals by major Gulf funds such as Saudi Arabia’s Public Investment Fund (PIF), the Oman Investment Authority (OIA), and UAE’s Mubadala. Our findings show that SWF-backed deals achieved competitive financial returns (average IRRs ~18%) comparable to other PE deals, while delivering superior operational outcomes (significantly higher revenue growth and strategic expansions). We attribute these patterns to SWFs’ ability to mitigate agency costs through active governance and provide unique resources and patient capital, albeit sometimes at the cost of slightly lower short-term returns. The results underscore the dual role of Middle Eastern SWFs as both return-seeking investors and instruments of national economic policy, aligning with Institutional Theory. This study contributes to the literature by bridging finance and institutional perspectives in an emerging markets context. We conclude with recommendations for PE firms and policymakers on leveraging SWF partnerships and outline directions for future research on long-term value creation in emerging PE markets.