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Gulf wealth funds look to snap up ‘cheap’ assets in West

Sheikh Hamdan, Crown Prince of Dubai and chairman of Investment Corporation of Dubai, arrives for an ICD meeting. The fund is valued at $300bn by Global SWF ICD
Sheikh Hamdan, Crown Prince of Dubai and chairman of Investment Corporation of Dubai, arrives for an ICD meeting. The fund is valued at $300bn by Global SWF
  • SWF portfolios have fallen in value after bumpy year, report finds
  • But appetite for mega-deals has not waned in the Middle East
  • Five out of 10 most active investors in 2022 came from the region
  • Gulf funds have more than doubled investment in West in one year

Sovereign wealth funds across the Middle East are forecast to take advantage of “limited competition” from global peers this year to pursue “cheap” assets in Europe, the US and other western markets.

A sharp drop in stock and bond markets over the past year has resulted in the combined value of the world’s sovereign wealth and public pension funds falling for the first time – by an estimated $2.2 trillion, according to the annual study of the sector by consultancy Global SWF.

Its report found that the value of assets managed by sovereign wealth funds (SWFs) fell by 7.8 percent in 2022, down from $11.5 trillion to $10.6 trillion.

However, despite challenges connected to geopolitics, high inflation, rising interest rates and significantly negative returns in both stocks and bonds, sovereign investors deployed more capital than ever.

The New York-based consultancy attributed this largely to the increased activity by SWFs – specifically, those in the Gulf, buoyed by oil prices and “the return of the mega-deals that were favoured over venture capital in an attempt to deploy a lot of capital, very quickly”.

Global SWF revealed that five out of the 10 most active investors over the past 12 months hailed from the Middle East. “Abu Dhabi investors are covering all bases with Abu Dhabi Investment Authority most active in North America, Mubadala focused on European assets and ADQ investing across emerging markets. 

“Saudi Arabia’s PIF has been incredibly active both at home and overseas, and Qatar Investment Authority is back on the leaderboard thanks to a very active year.”

SWFs in the region have been able to strengthen their position and sustain momentum due to an average oil price of around $99 per barrel and to the peg of their currencies to the dollar.

Middle Eastern SWFs have more than doubled their investments in Western economies, including the US and Europe, from $21.8 billion in 2021 to $51.6 billion in 2022.

Of the 60 mega-deals in 2022 — $1 billion or more — 26 were carried out by Middle Eastern SWFs, and 17 of them were linked to American or European assets. The largest was made by Abu Dhabi Investment Authority, when it invested $4 billion in Ardian’s fund ASF IX and $2 billion for joint co-investments.

The report said: “This means that Middle Eastern investors are driving forward with the pursuit of ‘cheap’ assets in Europe (including the UK) and in the US, and with more limited competition coming from their international peers.”

Rachel Ziemba, founder of New York-based geo-economic advisory firm Ziemba Insights, told AGBI that the investment priorities for SWFs in the region would encompass power infrastructure and green energy, technology and services – and would be led by the financial muscle of Saudi’s PIF.

She said: “I expect a broad regional focus to continue, with more focus in developed economies, especially as early-stage investments. They will also continue to invest via joint platforms in emerging economies, including those in the region like Egypt and may cautiously begin adding some investments in China.” 

Investments in China had suffered during the country’s crackdown on technology and general underperformance.

In December, the Oman Investment Authority revealed plans to invest OR1.9 billion ($4.95 billion) in 2023. It said the investments would include about 65 new and existing projects in sectors including logistics, food and fisheries, energy, mining, services, and communications and IT.

“Overall, Gulf funds continue to be a notable source of capital, more so to equity sectors, early stage and public markets and are likely to remain so, as countries in the region retain surpluses,” added Ziemba.

Growth across the Gulf averaged 6.5 percent in 2022, according to International Monetary Fund estimates.

The IMF is forecasting that the UAE will be the fastest-growing Gulf economy in 2023, at 4.2 percent. Oman is expected to grow by 4.1 percent, Saudi Arabia 3.7 percent, Bahrain 3 percent, Kuwait 2.6 percent and Qatar 2.4 percent.

World’s 10 largest sovereign wealth funds
China Investment Corporation, $1,351 billion
Norges Bank Investment Management, Norway, $1,145 billion
Abu Dhabi Investment Authority, UAE, $993 billion
State Administration of Foreign Exchange, China, $980 billion
Kuwait Investment Authority, $769 billion
Government of Singapore Investment Corporation, $690 billion
Public Investment Fund, Saudi Arabia, $620 billion
Hong Kong Monetary Authority, China, $500 billion
National Council for Social Security Fund, China, $474 billion
Qatar Investment Authority, $450 billion

More multi-billion-dollar Gulf sovereign wealth funds
Investment Corporation of Dubai, UAE, $300 billion
Mubadala, UAE, $284 billion
ADQ, UAE, $157 billion
National Development Fund of Iran, $139 billion
National Development Fund, Saudi Arabia, $93 billion
Emirates Investment Authority, UAE, $91 billion

Source: Global SWF annual report