Saudi Arabia and Egypt are set to be the most attractive destination for private equity investment in the Middle East region, according to the UK’s Ernst & Young.

The two countries, which represent the region’s largest economy and most populous nation respectively, are expected to attract the bulk of private equity activity over the coming years, with investment targeting the healthcare, education, infrastructure, oil and gas services, and consumer-focused industries.

“Fundamental factors like demographics, the robustness of its financial institutions, a very healthy economic outlook and steady growth continue to position the kingdom as a leading private equity destination,” says Fahad Altoaimi, Office Managing Partner, Ernst & Young Riyadh.

The development of private equity in the Middle East still faces several challenges though, according to the firm, centred around the difficulty of raising new funds, exiting existing investment, and limitations on the ability to acquire controlling stakes in firms, particularly buying up listed companies.