The new Gulf sovereign wealth fund boom
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The new Gulf sovereign wealth fund boom




The football World Cup in Qatar was not the only show drawing attention to the oil-rich Gulf in recent weeks. In Abu Dhabi, an annual finance conference was so packed that attendees were left with standing room only as the region is increasingly viewed as one of the remaining sources of abundant capital. When sessions ended, bankers and investors squeezed through corridors pitching deals on the hoof. “It was so busy, it felt like the whole island sank a little,” one Abu Dhabi official quipped to a banker present.

There were similar scenes in neighbouring Saudi Arabia, where the kingdom’s so-called “Davos in the Desert” investor conference drew record numbers with more than 1,000 “global executives” attending, including about 400 from the US and scores from Europe. For many of those beating a path to the Gulf there is one thing on their minds — luring capital from, and striking deals with, sovereign wealth funds as the region enjoys its first petrodollar-fuelled boom in a decade. “You have the world and his wife coming here looking for capital,” says a veteran Gulf-based banker. “It feels like 2008.” That was the year that thrust many of the Gulf’s SWFs into the spotlight as oil prices soared to a record $147 a barrel, while much of the rest of the world suffered the global financial crisis. Back then it was Abu Dhabi’s stable of investment vehicles and the Kuwaiti and Qatari SWFs that made the biggest splashes.

These funds became go-to investors for distressed western assets desperate to raise capital. Citigroup, Credit Suisse, Barclays and Daimler were among high-profile companies and brands bolstered by injections of Gulf petrodollars.

Today, the SWFs are once again eyeing opportunities amid another bout of global tumult, buoyed by petrodollar surpluses after oil prices last year reached their highest levels since 2008. While much of the world braces for recession, the IMF forecasts that the Middle East’s oil and gas producers are set to reap up to $1.3tn in additional revenues than had been expected over the next four years as energy prices were pushed up by Russia’s war in Ukraine. Much of it will flow to the Gulf, home to top crude exporter Saudi Arabia and the largest liquefied natural gas exporter Qatar.

It is a boom that is set to bolster the soft power of the region’s increasingly confident absolute monarchies, notably Saudi Crown Prince Mohammed bin Salman as he seeks to defuse criticism of his regime’s human rights record and project the kingdom as a major G20 power.

“The quantum available is massive,” says an investment banker. “For the last two months, every week we have one or two companies here, primarily from the US, but also Europe, China, India, doing roadshows.” Yet Gulf officials caution there are differences with 2008. Although they consider this as a moment to capitalise on, this time they say the investments will be done in a more strategic and less opportunistic manner. “It’s not about the deal flow that is seeking us out. We want the deal flow that fits with our strategic ambitions,” says Khaldoon Mubarak, chief executive of Mubadala, a $284bn Abu Dhabi sovereign fund that has investments in more than 50 countries. “In 2008 we reacted well, but this time our approach is more proactive and strategically deliberate.” Experienced investors The Middle East’s sovereign wealth funds are bigger and more experienced than in 2008.

Mubadala managed assets of just $15bn during that period. Abu Dhabi, the wealthy capital of the United Arab Emirates, has also consolidated funds over the past decade after two of its vehicles — Aabar and Ipic — got sucked into Malaysia’s 1MDB fraud, which became one of the world’s biggest financial scandals. The $450bn Qatar Investment Authority was just three years old in 2008 and often appeared to act on impulse rather than strategy. “We were very young [in 2008] — the teams were a bit smaller and we were building the portfolio from scratch, so we were more opportunistic,” says Mansoor bin Ebrahim al-Mahmoud, QIA chief executive. “Nowadays, it’s totally different.

We are mature, well established, with specialised teams and a robust asset-allocation strategy.” He is eyeing an “opportunity to reposition our portfolio in certain directions, to fill certain gaps or correct overexposure”.

Yet one of the main draws for investors this time round is a fund that sat on the sidelines during the 2008 boom — Saudi Arabia’s Public Investment Fund, or PIF. It has undergone a radical reinvention since Prince Mohammed took over as chair in 2015 as it has been tasked with leading Riyadh’s grandiose plans to overhaul its rentier economy. It has committed to spending hundreds of billions of dollars at home, while using its newfound financial and political clout to diversify the kingdom’s overseas exposure. It is also pursuing strategic investments to lure technology and knowhow onshore to bolster Riyadh’s development plans.


“It’s massive asset management, a sovereign wealth fund, a conglomerate and a government policy extension all combined into one,” says another senior investment banker, with a “tremendous appetite” for opportunities. Rizwan Shaikh, co-head of emerging markets at Citigroup’s banking, capital markets and advisory division in Emea, says: “We have to be selective in terms of who we bring in to put in front of the funds, but they are keen and want to see what’s out there.” At the same time, he says the main inquiries his bank is receiving are from clients looking for capital and strategic partners. “It’s kind of the first thing people think about — we need strategic capital, where are the sources?” A delicate balance The new phase of dealmaking by the Gulf’s SWFs began with the coronavirus pandemic. Mubadala invested a record $30bn in 2021.


Last year, it committed to investing £10bn in the UK over five years, and has already deployed about half of it. Its younger sister, ADQ, has been on the acquisition trail across the Middle East, north Africa and Turkey. Even Adia, Abu Dhabi’s most traditional and conservative SWF, has been investing at a high velocity. Some, however, believe there is still time for asset prices to fall further, meaning they are not in a rush. “Is it a market where you have a lot of cheap assets and it’s time to attack? No, I think there’s a lot more pain that’s still coming,” says Mubarak, chief executive of Mubadala. “We’re careful how we deploy our powder. We’re well positioned in terms of liquidity and in terms of access to deal flow.”


Elsewhere, the QIA’s largest investments last year include €2.4bn in German power company RWE and $1.5bn in Bodhi, James Murdoch’s media venture in India. It was an anchor investor in Porsche’s initial public offering.

In Saudi Arabia, the PIF has done fewer of the sort of big-ticket deals it did in 2016 when it took a $3.5bn stake in Uber and pumped $45bn into SoftBank’s floundering Vision Fund. But it continues to be highly active, launching myriad companies at home, from a Saudi electric vehicle brand, Ceer, to coffee and aircraft leasing companies, while also trading billions of dollars in overseas stocks. The fund’s foreign exposure has surged from 9 per cent of its assets in 2017 to about a quarter in June, while the size of the fund has swelled from about $150bn seven years ago to more than $600bn. Its target is to reach more than $1tn assets under management by 2025, with about 30 per cent in international investments.

Noticeable global deals this year include its decision to pump more than $3bn into gaming companies, including taking a 5 per cent stake in Nintendo. The PIF’s transformation underscores the dramatic shift in the kingdom’s risk appetite and the way the leadership intends to manage its wealth. In the past, Saudi governments typically used boom periods to dispense largesse to the population through benefits, subsidies and public sector wage increases, while also embarking on a flurry of state spending on infrastructure projects.

That would propel growth in the state-dominated economy, but lead to cycles of boom and bust, with the latter characterised by yawning deficits, stalled projects and delayed payments to contractors. Any money that was saved would be tucked away at the central bank and conservatively managed. Today, much of the state spending is channelled through the PIF and a National Development Fund, which are expected to be the main beneficiaries of the recent surpluses.

“We don’t want money sitting idle yielding zero,” says finance minister Mohammed al-Jadaan, who also is a member of the PIF board. The delicate balance Riyadh wants to strike, he says, is maintaining fiscal discipline while also taking advantage of the opportunities presented by the boom. He insists that Riyadh has strengthened its institutional capacity to monitor the efficiency and control of state spending, saying it is using a data-driven approach to prioritise projects based on potential economic return.

As an example, he cites the establishment of a “spending efficiency centre”, with more than 500 staff, to help avoid “a rush in spending without proper plans”. It has generated direct and indirect savings of $186bn since 2016, according to the ministry.

The goal, Jadaan says, is “how to avoid projects from going bust when we have seen hundreds and hundreds of projects [in the past] start strong and then in the middle for whatever reason . . . are not completed”.

He adds that the difference today “is you are investing when there’s capacity in productive assets, in assets and expenditure that will create more jobs and grow the economy”. Riyadh has already used the windfall to accelerate projects, Jadaan adds, citing logistics as the kingdom plans to develop a railway network connecting the east and west, and Red Sea ports. “We are taking advantage of this moment as we speak,” he says. “We are going to spend more when we have more money, and we may even borrow more.”

The PIF raised $17bn in November through a syndicated loan, weeks after it raised $3bn through a green bond, a nod to the fact that even with the kingdom’s oil wealth, the fund will need to borrow to meet its large commitments. Steffen Hertog, a Gulf expert at the London School of Economics, says that while the finance ministry has put in more controls on spending, it is the PIF’s activities that raise concerns, adding that “we get almost no disclosure on the spending they undertake”.

That the PIF, and some of the projects it oversees, are using debt also creates potential sovereign risk, he adds. Even with the windfall, questions linger about how the PIF will meet its financial commitments. Experts say just Neom, the futuristic city that is Prince Mohammed’s flagship megaproject, will cost far more than $500bn originally stated.

“In a way it’s actually potentially even less accountable and less transparent than the previous sort of spending booms,” Hertog says. “It’s more speculative than the capital spending that you would have had under governments. It can create higher returns but is also riskier; some people are worried about that.”

‘Almost nationalisation in reverse’ A key focus among officials in Saudi Arabia and the UAE in the current boom is to utilise state funds to bring companies to their shores to support domestic development plans.

It comes as economic competition heats up in the region. In Abu Dhabi, officials talk of using the funds to help accelerate the development of tech and renewable energy hubs, as well as the emirate’s financial centre, ADGM. As part of the latter strategy, Abu Dhabi is promising to commit seed capital to private equity funds willing to set up in the ADGM.

“The private equity market is changing. Today there’s an opportunity because most people are scaling back and we have the ability to scale up,” says Mubarak, of Mubadala.

Yet in terms of scale and ambition, nothing compares to what the PIF is attempting to achieve in the Gulf’s largest economy and most populous nation. As it has become the dominant economic force in Saudi Arabia, it has created more than 60 new domestic companies over the past seven years. It expects to invest $40bn annually in the economy over the next decade, with its mandate covering everything from developing a new airport and airline, to incubating and growing new industries and driving vast infrastructure projects. “It’s almost nationalisation in reverse,” says a senior investment banker. “Everything else is going to get crowded out.”

The PIF’s domestic strategy includes an emphasis on sectors where Riyadh believes it can expand industries utilising domestic resources, such as mining and building materials, as well as projects designed to reverse the tradition of Saudis going abroad for shopping, tourism and entertainment, and support the nation’s development, including housing, healthcare and financial services.

But other areas where there is high local demand, but limited supply, such as automotives or defence, will require the PIF importing capacity through acquisitions. To support this, the fund’s MENA and international investment teams can co-ordinate on investing in foreign stocks that fit with the domestic programme. The clearest example is the PIF’s 62 per cent stake in Lucid, which led to the electric vehicle maker establishing a manufacturing hub in the kingdom.

Hertog says Saudi Arabia in particular is likely to need to acquire majority stakes to lure that foreign direct investment it is seeking, saying “companies could promise them all sorts of things to get capital injections”.

“But you’ll have a real principal agency problem — where the company wants capital, but it doesn’t want to invest in Saudi,” he says. “You will be back to that logic of kind of offset deals in defence, where companies have to sort of go through the motions and invest locally without really wanting to do it.”

Previous efforts by Gulf states to bring industry to their shores, be it Saudi Arabia’s past ambitions to develop auto manufacturing, or Abu Dhabi’s plans to establish a semiconductor plant in the emirate after Mubadala pumped billions of dollars into semiconductor firm GlobalFoundries, never made it off the drawing board. And Saudi Arabia’s history is littered with projects that have either stalled or failed.

Still, the veteran Gulf-based banker says while it is inevitable that resources will be wasted, “what’s more striking is each country has entities that seem better able to manage the money”.


The risks, he says, “are we go backwards in terms of greed and corruption because there’s so much money around”. For now, though, the mood in the Gulf is one of confidence. “We will make mistakes, but overall I think we are doing a great job,” says Jadaan. “We are very confident, [but] cautious, obviously the world is in turbulence and we are not isolated.”