The launch of the new market would ease the bar of entry for the region's SMEs and give them the opportunity to tap growth capital, said DIFC chief economist Nasser Saidi.

He was addressing the Gulf Venture Capital Association conference in Dubai, which was organized to release the 4th annual Private Equity & Venture Capital in the Middle East report.

The private equity industry needs a second-tier market where they can list smaller companies with revenue of $20 million to $80 million and which has less stringent listing rules, said Saidi.

Private equity firms in the Middle East and North Africa raised $1.25 billion in the first quarter of 2010, an 18 per cent increase over the whole 2009, as regional economies recovered and investor appetite returned, according to the report.

It is estimated that up to $10 billion committed to private equity funds are yet to be invested, although some funds are expected to release their investors from their future commitments, it added.

"Private equity has regained its positive momentum despite the results of 2009. The outlook for private equity in 2010 and beyond remains positive as the economic fundamentals of the region have not changed," said Imad Ghandour, chairman of GVCA's Information Committee.

"The story in the region continues to remain one of growth and economic stability, and private equity funds will have ample opportunities to invest profitably in the coming few years," he said.

The existing equity markets in the Middle East are geared for bigger companies, although about 95 percent of the firms operating in the region are small- and medium-sized, said Saidi.

Discussions are being held with a number of private equity firms and market practitioners that may use the second-tier market although there is no timeframe yet to set it up, he said.

A second-tier market would remove some of the financial and regulatory barriers to listing that put off smaller companies from initial public offerings on local markets, where companies have to float 55 percent of their shares at a price dictated by the authorities, rather than via a book-building process.

"It is encouraging to see that private equity investors are getting back to basics by channeling much needed funds into parts of the economy that received little attention during the boom years. Investing in sectors that serve the needs of the masses, such as health care, education and utilities, is important for the common prosperity of the region," said Ihsan Jawad, CEO, Zawya.

Commenting on the recent improvement in market sentiments, Vikas Papriwal, KPMG's UAE country head of private equity and sovereign wealth funds, said: "We have undoubtedly seen an increase in activity in the market."

The plan for a new sub-market comes as DIFC-based NasdaqDubai and Dubai Financial Market, the government-administered domestic bourse, have linked their trading platforms and officials are working on a merger between the stock exchanges of Dubai and Abu Dhabi.