The Takeaway: A Q&A With Khuram Maqsood on the Opportunity in Mid-Cap Private Equity for Middle Eastern LPs

The Middle East is deploying capital at scale, but it doesn't appear to be translating into more diversified private equity allocations. Why is that?

The Middle East is undeniably a major force in global private equity capital flows and a key allocator of institutional capital worldwide. According to Global SWF's 2025 Annual Report, sovereign wealth funds (SWFs) based primarily in the Gulf Cooperation Council (GCC) accounted for 36% of global sovereign investment activity in the first half of 2025-up from 32% in the second half of 2024.

As a result, we've seen a marked increase in global general partners (GPs) coming to the Middle East to raise capital in the past few years. But for many, it's proven a tough market to crack.

Capital in the region is highly concentrated among SWFs and other quasi-government institutions that are used to deploying large ticket sizes into global asset managers with household names. With a minimum ticket size of $100 million, only a very small pool of GPs can absorb that level of capital.

As a result, there has been an over-indexing in favour of scale and brand recognition. This dynamic is crowding out smaller, often more agile managers-particularly those in the middle-market space.

Is this emphasis on mega funds and brand names limiting long-term performance potential?

In our view, yes. Middle Eastern LPs are potentially missing out on meaningful upside.

The U.S. middle-market private equity segment, for instance, has delivered strong growth over the past decade. According to our analysis of PitchBook data, the segment has seen an average annual deal flow of $400 billion since 2010, with 7% annual growth. More importantly, top-quartile middle-market funds have outperformed their large-cap peers, delivering 570 basis points higher returns over a 10-year average. In the top decile, that performance gap rises to 870 basis points.

These are compelling numbers that speak to the strength of a segment often overlooked by large SWFs globally, particularly those in the Middle East.

What is holding Middle Eastern LPs back from participating more actively in this segment?

Part of it comes down to the emphasis placed on strategic partnerships. For many SWFs, relationships with large global asset managers are not just about returns-they are about knowledge sharing, co-investment access, and geopolitical alignment. That preference often supersedes what is, on paper, the more attractive economic opportunity.

Our 2025 LP Compass survey found that only 64% of LPs in the Middle East are willing to invest in a manager that is raising their third fund-compared with 90% globally. And just 46% would back a first-time manager, versus two-thirds of North American investors. This likely in part comes down to proximity and access, but also highlights the decision-making processes at the LPs. To increase exposure to middle-market funds, you need time to build conviction and have dedicated resources for diligence protocols.

So, where does the opportunity lie for LPs in the Middle East?

Our LP Compass survey found that globally, institutional investors of all types continue to prefer smaller fund categories, with 81% of LPs saying they will likely favour lower-middle-market funds over the following year.

The potential for higher returns in the middle-market is likely a key driver of these considerations. Concerns about geopolitical risk are another. Smaller funds are seen as less correlated with macroeconomic cycles and public markets, while the smaller companies that these funds buy are also less likely to be impacted by international trade tariffs.

There's a powerful diversification case to be made here. By anchoring more middle-market managers-particularly in the U.S. and Europe-Middle Eastern LPs can tap into companies with high organic growth potential, while reducing their exposure to macro and policy shocks.

The upshot is clear: This market segment is ripe for strategic capital. We believe there is a growing cohort of high-performing managers that would welcome Middle Eastern LPs not just as passive allocators but as value-added partners.

So, what's The Takeaway?

Middle Eastern LPs include some of the world's largest investors and have traditionally allocated heavily to private equity, especially in large and well-established asset managers. However, they have tended to under-allocate to emerging fund managers.

The mid-cap private equity market offers diversification, performance, and lower correlation to geopolitical risk-important qualities in the current macro environment.

The lesson to draw from the performance data is that if LPs have strong confidence in their abilities to select top-quartile managers, then they should think about allocating more to the middle market, where top-quartile returns far exceed the comparable large-cap returns. If, on the other hand, an LP's manager selection capabilities are undifferentiated, then they should stick with investing in the large-cap segment, where median returns tend to outperform comparable middle-market returns.

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