Amid the global recession, the financial world is chasing money in the Middle East
A man in a suit walks past Dassault Falcon executive jets, Dubai, United Arab Emirates
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The organizers of the Investopia x Salt conference in Abu Dhabi – the brainchild of the American financier and one-time White House press secretary Anthony Scaramucci and the ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum – expected to see 1,000 guests over the event two days early. March. Instead, he got 2,500.
“We’re a little overcrowded, but it’s a good sign,” one of the organizers told CNBC. Others were dismayed. “There are too many people. Everyone coming to the Gulf now wants money. It’s a shame,” said one Dubai-based fund manager. Both sources declined to be named due to professional restrictions.
Spending is not a new thing in the Gulf states, which are rich in oil. The 10 largest sovereign wealth funds in the region collectively manage nearly $4 trillion, according to the Sovereign Wealth Fund Institute. That’s more than the gross domestic product of France or the UK – and it doesn’t include private money.
But the influx of foreign institutional investors – and visible interest from venture capitalists and startup founders in advanced sectors such as fintech, digital transformation and renewable energy technology – shows a level of sophistication that is being noticed now more than ever, industry players say.
“Investment used to flow only from the Gulf. Now it goes both ways; institutional investors are coming and investing here,” Marc Nassim, partner and managing director at Dubai-based investment bank Awad Capital, told CNBC.
The regional investors, especially the landlord’s money but also the families, are now much more sophisticated than before.
Partner & Managing Director, Awad Capital
“The Middle East feels more stable than Europe right now,” Stephen Heller, a founding partner at Germany-based AlphaQ Venture Capital, told CNBC. “Europe’s security issues, economic inequality are getting worse … at the same time, the Gulf has its s— together. ” Funding fund Heller, which invests in megatrends such as climate technology, infrastructure, health and fintech, recently opened its first Middle East office in Abu Dhabi.
“There is entrepreneurial energy in the UAE and Saudi Arabia today,” Heller said. “I see the potential because you have technically unlimited capital, and if you have entrepreneurs coming here, you can have big consequences.”
The capital followed
As oil prices recovered sharply in the past two years, the Gulf’s public wealth funds went on a spending spree. The top five regional funds in terms of spending in the past year – ADIA Abu Dhabi, ADQ and Mubadala, PIF Saudi Arabia and QIA Qatar – used a total of more than $73 billion in 2022 alone, according to the wealth fund manager. Global SWF sovereigns.
The city skyline of Abu Dhabi, United Arab Emirates.
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Meanwhile, the value of sovereign wealth fund assets globally fell from $11.5 trillion to $10.6 trillion between 2021 and 2022, Global SWF said, while those held by public pension funds also fell amid a sharp decline. in stock and bond markets.
“Five out of the ten most active investors come from the Middle East,” and ADIA is currently the “world’s largest money-losing allocation,” wrote the Global SWF 2023 report .They said GCC sovereign wealth funds played an important role in 2020 due to the Covid-19 pandemic and again in 2022 during times of financial crisis.
So to say that demand from abroad is high is an understatement. “Many parts of the world are low on capital – Western institutional money is a form of restraint. And this sector has a lot of capital. Our phones are ringing off the hook,” said one investment fund manager. UAE, declined to be named due to professional restrictions.
It is no longer ‘dumb money’
But while many overseas companies have long seen the Gulf as a source of “dumb money,” some local investment managers said – referring to the stereotype of oil-rich sheikhdoms throwing money at whoever wants it – investment from the sector has become much more sophisticated. , using deeper due diligence and being more selective than in years past.
“The regional investors, especially sovereign funds but also the families, are now much more sophisticated than before,” said Nassim of Awad Capital. “They are much more diligent than before about who to invest in.” they write the check.”
“Before it was much easier to come and say, ‘I’m a fund manager from San Francisco, please give me a million or two.’ Now, not only are they more educated but there is a lot more money from all over the world – the US, Latin America, Europe, Southeast Asia – coming here. to raise capital.
A screen broadcasts Khaldoon Al Mubarak, chief executive of Mubadala Investment Co., during a session at the Future Investment Initiative (FII) conference in Riyadh, Saudi Arabia, on Tuesday, October 25, 2022.
Tasneem Alsultan | Bloomberg | Getty Images
In the UAE in particular, liberal reforms, a highly praised treatment of the Covid-19 pandemic and a willingness to do business with anyone – including countries like Israel and Russia – are on the image. their development to foreign investors. In Saudi Arabia, financiers are attracted to historic reforms and a huge growth market of almost 40 million people, some 70% of whom are under the age of 34.
The money from GCC funds still goes largely to developed markets, especially the US and Europe. Priority sectors include energy, renewables, climate technology, biotechnology, agricultural technology and digital transformation, fund managers say.
As with any commodity-related economic boom, however, fortunes can change – not so long ago the pandemic pushed oil prices to multi-decade lows, forcing governments to It is possible to regulate spending and introduce new taxes. Saudi Arabia and the UAE in particular are investing heavily in diversification, with a view to the long term.
“The music would stop if there was [the price of] oil goes down in such a way that some SWFs have to use their reserves to help governments maintain their fiscal positions – highly unlikely – or geopolitical risk” such as war or our -out, said Nassim.
“If oil goes down, the surplus created and normally allocated to the SWFs would obviously decrease, forcing them to reduce their investments and limit them to assets that generate higher returns ,” he said, although he noted that not all SWFs. you have the same mandate when it comes to investment strategy.
For those companies seeking investment from the deep pockets of the Middle East, they are wise to do so while the music is playing.