Sovereign wealth funds in the Gulf countries have become funders of some of the world’s largest bailout packages, investments and acquisitions, without showing signs of backing down from this trend in 2023, according to a report by the agency.bloomberg“.
Sovereign funds from Saudi Arabia to Qatar and Abu Dhabi are now managing more than $3.5 trillion, an amount that exceeds the UK’s gross domestic product, as a result of the high oil price in 2022.
During previous years, Gulf investors had a “good reputation” for snapping up investments in Western countries such as Manchester City, Manhattan real estate and Harrods, according to the US agency.
This time around, dealmakers say, the Gulf Arabs are using a new tactic, using their wealth to claim a bigger role on the global stage, diversify their economies and gain geopolitical clout.
Andy Kearns, head of capital markets in the Middle East and North Africa at the US company, “Houlihan Lockey”, said: “Sovereign wealth funds in the region are unequivocally at the head of the table to take a first look at all global deals.”
He added that this was in line with a region “increasingly expressing and asserting its economic and political ambitions on the world stage”.
billion dollars a day
Wealth funds in the region spent 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 of 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 made Saudi Arabia – for example – earn one billion dollars from oil sales per day, according to “Bloomberg”.
Without the constraints of other global firms, Gulf funds are expected to continue spending even as crude oil prices fall, in contrast to the United States, Europe and China, where financing and deals have been subject to higher interest rates amid recession fears.
According to the “Bloomberg” report, companies and banks hungry for money from all over the world send large teams to cities such as Riyadh and Abu Dhabi to present investment ideas.
Despite the frantic level of activity, some executives find themselves waiting days to meet the right people, people familiar with the matter said.
And when dealmakers get to the right place, 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 executives working with Gulf funds, it is now becoming increasingly difficult to win over Gulf investors as they reject deals that are not commensurate 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, with a focus on “supporting their local economies or creating wealth for future generations.”
The executives of the Saudi Public Investment Fund are committed to concluding deals commensurate with Prince Mohammed bin Salman’s strategy for the Kingdom, which seeks to reduce dependence on oil as a source of income and expand in new industries, and they also aim to manage assets worth $ 1 trillion by 2025.
A spokesperson for the Saudi sovereign wealth fund said via 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, which requires the fund to spend an average of $40 billion annually.
PIF executives missed that target in 2022 for the second year in a row, according to people familiar with the matter. The spokesman said that the Saudi sovereign fund “accelerated its domestic investments to record levels.”
Some European governments have become more cautious about their trade relations with China, giving the Middle East more opportunities.
In Doha, the $450 billion Qatar Investment Authority is seeking more foreign deals after the soccer World Cup ended last month in the Gulf emirate.
After the visit of the German Chancellor, Olaf Scholz, to Qatar in September, the Qatar Investment Authority became an important supporter of the facilities of the German electric service company “RWE” with an investment of 2.4 billion euros ($ 2.5 billion).
A representative of the Qatar Investment Authority said via email that its strategy focuses on long-term value across a variety of sectors including “tech-enabled industries, renewable and low-carbon energy, and healthcare.”
In 2021, Mubadala has committed to investing £10 billion ($12.2 billion) in the UK for energy transfer, infrastructure and technology in a deal announced by the current ruler of the United Arab Emirates Sheikh Mohammed bin Zayed that aims to show the country’s support for the UK post-Brexit. from the European Union.
Mubadala, a sovereign fund in the UAE capital, was interested in buying Standard Chartered Bank, the British financial giant with a value of more than $20 billion, through the fund’s First Abu Dhabi Bank.
And “Bloomberg” reported that the First Abu Dhabi Bank – owned by Mubadala and members of the ruling Al Nahyan family in Abu Dhabi – explored 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 employ capital to achieve investment returns and political goals together is a luxury.”
She added, “This explains the magnitude of this shift in the assets of Gulf sovereign wealth funds.”