Jobs at risk as private equity slows hiring in the Gulf

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• Wall Street firms see slump in deals since Fed interest rate hikes
• Goldman Sachs expected to lay off several hundred workers
• Middle East to adopt culling strategy, says GII boss Pankaj Gupta
• JPMorgan Chase CEO warns investors economic ‘hurricane’ on way

The looming global recession is pushing private equity firms to freeze hiring in the Gulf, with layoffs likely to be on the way, an executive at a UAE-based global investment company has said. 

Major Wall Street firms are already beginning to rein in expenses amid a slump in deals volume on the back of repeated hikes in interest rates by the US Federal Reserve.

The rate rises are designed to tame inflation and geopolitical uncertainties as a result of the Russia-Ukraine conflict. 

Data by London-based firm Dealogic found that global dealmaking in Q3 2022 dropped to $722 billion – a 54 percent decline from a year ago and 38 percent down from the previous quarter this year.

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The 6,916 transactions in the third quarter were also 32 percent lower year-on-year and 26 percent down sequentially, making it the worst quarter since Q2 2020 when the start of the coronavirus pandemic halted dealmaking.

“I’m seeing that people in the region have stopped hiring,” said Pankaj Gupta, co-founder and co-CEO of Gulf Islamic Investments (GII), a Shariah-compliant global investment company with over $3bn of assets under management. 

“I would exclude some big sovereign wealth funds (SWFs). They have a lot of money so they are hiring people left, right and centre.

“But a lot of family offices and other institutions have investment outside the region and their valuations have come off, so they have an imported fear that something would hit here.”

Large asset managers like BlackRock, T. Rowe Price and Goldman Sachs have already slowed hiring and are expected to make job cuts as markets still search for a bottom with worries of an oncoming recession.

“The first half of 2022 brought an investment environment that we have not seen in decades,” Larry Fink, chairman and CEO of BlackRock, wrote in a July earnings report.

“Investors are simultaneously navigating high inflation, rising rates and the worst start to the year for both stocks and bonds in half a century, with global equity and fixed income indexes down 20 percent and 10 percent, respectively.”

Financial investment giant Goldman Sachs is expected to lay off several hundred workers, the New York Times reported. 

Goldman reported in July that its second-quarter profit had dropped nearly 50 percent from a year earlier, to just under $3bn, and revenue from its investment banking division fell 41 percent from the same period in 2021.

“A lot of business was done in 2020 and 2021 in private equity,” Gupta said. 

“We were seeing one deal announced practically every week. Institutions were building capacity and they were hiring people, and nobody thought inflation would go this high.

“Everybody thought inflation was in a transitional stage and it is transient rather than permanent. Now everybody is realising that it’s a much bigger problem and there is a huge pressure of wages.

“Wage inflation is a big problem now and companies’ revenues and bottom line is being affected. Even the big guys like Goldman are firing people.”

The nosedive in deal demand is likely to drive private equity players in the region to adopt a similar culling strategy, Gupta predicted.

“In my opinion you should see it in some time to come – with the impact of whatever is happening in global markets, something should happen here too,” he said.

“I think private equity companies in the region have not taken the hit on their portfolio to the extent it should, and they are preparing for that. So it’s a precursor to that.

“They will want to cut people costs so they can manage their portfolio well because the portfolio will show some losses, which would affect their earnings.

“When you see there’s a problem in the neighbourhood, you also get wary. There’s an induced effect, for sure.”

JPMorgan Chase CEO Jamie Dimon warned investors in June that an economic “hurricane” was on its way, predicting that the US and world economy will tip into a recession in 2023.

So far the Gulf continues to be a rare bright spot in the global picture, riding high on oil prices and a relative meagreness of activity in other markets.

Total investment banking fees in the Mena region amounted to $1.05bn in the first nine months of 2022, up 5 percent year-on-year, according to Refinitiv’s Mena Investment Banking Review. 

JP Morgan retained its position as the leading fee earner in the region with $84.3 million in the first nine months of 2022.

This was down 16 percent year-on-year, however, and the New York-based bank’s share of total fees fell 2 percentage points to 8 percent. 

British lender HSBC earned $65m to keep second place, despite also suffering a 2-point decline in its share of total fees.

American giant Goldman Sachs soared to third from seventh having netted $54.5m in fees.

“The dilemma is that we are seeing a lot of business activity locally so what is happening is that the teams are overstretched,” Gupta added. 

Signs this week have already started to emerge. Bloomberg reported on Thursday that UBS Group AG is planning to wind down its dealmaking and advisory operations in the Mena region.

The division’s last senior banker in the region has tendered his resignation recently, they said, adding a decision to retreat from in-person operations was taken recently.

Bankers and specialists from other markets, such as the US and UK, will fly into the region to handle deals, the news agency reported.

In March, Michael Cleanis, managing director and head of global banking for the region, left the firm to join Abu Dhabi’s wealth fund Mubadala Investment Co. 

“Leadership doesn’t want to hire people because they know it will increase their cost,” Gupta said.

Headquartered in the UAE with offices in Dubai, Abu Dhabi, Frankfurt and London, GII manages assets of more than $3billion in private equity, venture capital and real estate.