Big profits and political influence… The rise of Gulf sovereign funds

Sovereign wealth funds in the Gulf countries have become funders of some of the biggest bailouts, investments and acquisitions in the world, showing no signs of reversing this trend in 2023, according to a Bloomberg report.

Sovereign funds from Saudi Arabia to Qatar and Abu Dhabi now manage more than $3.5 trillion, an amount that exceeds the UK’s gross domestic product, due to the high oil price in 2022.

During previous years, Gulf Investors had a “good reputation” for picking up investments in Western countries such as Manchester City, Manhattan Real Estate and Harrods, according to the US agency.

This time, dealmakers say, the Gulf Arabs are using a new tactic, using their wealth to claim a greater role on the world stage, diversify their economies and gain geopolitical influence.

Andy Kearns, head of capital markets in the Middle East and North Africa at the American company, “Houlihan Lockey”, said: “Sovereign wealth funds in the region are unequivocally at the head of the table for a first look at all global taking transactions.”

He added that this is in line with a region that is increasingly expressing and asserting its economic and political ambitions on the world stage.

billion dollars a day

Wealth funds in the region will spend nearly $89 billion on investments in 2022, double what they spent the previous year, according to data provider Global SWF.

Europe and North America accounted for $51.6 billion of the total spending by Gulf sovereign funds over the past year.

And Gulf wealth funds boosted their reserves with the rise in oil prices after the Russian invasion of Ukraine, which, for example, made Saudi Arabia one billion dollars a day from oil sales, according to “Bloomberg”.

Without the constraints of other global firms, Gulf funds are expected to continue spending even as crude oil prices fall, unlike in the United States, Europe and China, where financing and transactions are subject to higher interest rates amid recession fears.

According to the “Bloomberg” report, companies and banks hungry for money from around the world are sending large teams to cities such as Riyadh and Abu Dhabi to present investment ideas.

Despite the frantic level of activity, some executives are waiting days to meet the right people, people familiar with the matter said.

And when dealmakers hit the ground running, they can confront a complex world where big decisions often require the approval of royal families, blurring the line between pure investment vehicles and politics, other people said.

According to consultants and managers who work with Gulf funds, it is now becoming increasingly difficult to win over Gulf investors, as they reject deals that are not in line with their goals of nation-building or achieving returns.

Rajesh Singhe, head of mergers and acquisitions at Standard Chartered in the Middle East and North Africa, said that sovereign wealth funds in the region are reshaping their strategies, focusing on “supporting their local economies or creating of prosperity for future generations.”

The executives of the Saudi Public Investment Fund are committed to making deals that align with Prince Mohammed bin Salman’s strategy for the Kingdom, which seeks to reduce dependence on oil as a source of revenue and expand into new industries. expand, and they also aim to have assets worth $1 trillion by 2025.

A spokesperson for the Saudi sovereign wealth fund said by email that the PIF’s approach “is not changed by oil prices, but rather determined by our latest five-year strategy announced in January 2021 that the fund is implementing.”

He added that the Saudi fund has a strong investment process that suits global asset managers, and each member of the board of directors plays an important role in the discussions.

The Public Investment Fund has committed to investing more than $200 billion in the Saudi economy by 2025, an ambitious goal set by the crown prince that requires the fund to spend an average of $40 billion annually.

PIF managers missed that 2022 target for the second straight year, according to people familiar with the matter. The spokesman said the Saudi sovereign fund “accelerated its domestic investments to record levels.”

“Charity”

Some European governments have become more cautious about their trade relations with China, giving the Middle East more opportunities.

In Doha, the $450 billion Qatar Investment Authority is seeking more foreign deals after the World Cup ended last month in the Gulf emirate.

After the visit of German Chancellor Olaf Scholz to Qatar in September, the Qatar Investment Authority became an important supporter of the facilities of the German electric service company “RWE” with an investment of 2.4 billion euros ($ 2 .5 billion).

A representative of the Qatar Investment Authority said by email that its strategy focuses on long-term value in a variety of sectors, including “technology-enabled industries, renewable and low-carbon energy and healthcare.”

In 2021, Mubadala committed to investing £10 billion ($12.2 billion) in the UK for energy transmission, infrastructure and technology in a deal announced by the current ruler of the United Arab Emirates Sheikh Mohammed bin Zayed which aims to show the country’s support for the United Kingdom after Brexit from the European Union.

Mubadala, a sovereign fund in the UAE capital, is interested in buying Standard Chartered Bank, the British financial giant valued at more than $20 billion, through the fund’s First Abu Dhabi Bank.

And “Bloomberg” reported that First Abu Dhabi Bank – which is owned by Mubadala and members of Abu Dhabi’s ruling Al Nahyan family – had been mulling the Standard Chartered deal for more than six months before announcing its withdrawal from it .

Karen Young, a senior researcher at the Center for Global Energy Policy at Columbia University, said: “The ability to deploy capital to achieve investment returns and political goals together is a luxury.”

She added, “This explains the extent of this shift in the assets of Gulf sovereign wealth funds.”

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