The strength of Gulf funds
Last year, the region's sovereign wealth funds invested $90 billion, 60% between Europe and North America.
Gulf SWFs are changing their investment strategies, seeking alternative assets that ensure performance and impact on their economic environment, supporting their local economies and creating wealth for their future generations. By 2022, Gulf SWFs have invested more than USD 90 billion. Twice as much as in 2021. Some 60% went to Europe and North America.
Although some European countries are offering more opportunities to Gulf investors, as they have become more cautious in their relations with China after COVID-19.
Historically, these funds invested in Europe in trophy assets such as football teams, department stores or jewellery real estate. They also invested in bonds and global equities that now have very low interest rates. So they are now using their wealth to claim a greater role on the world stage, diversify their economies and gain geopolitical influence. They are recognised as smart, flexible and mature investors who have broken stereotypes.
Of the 10 most active sovereign wealth funds in the world, five are from the Middle East. And of the 60 largest deals last year, deals of more than $1 billion, 26 were done by Gulf sovereign wealth funds.
Yet the Middle East's vast reserves of capital remain untapped. And their firepower will get a further boost as Brent crude is forecast to average $94 per barrel over the next four years. Net financial wealth that will reach $5.6 trillion by 2026.
Such an unprecedented amount of surplus will strengthen the region's balance sheets, support regional risk assets over the medium term and further boost its position as a critical creditor region in the global economy.
Saudi Arabia has already presented a strategy to grow its public investment fund from $607 billion to $1.8 trillion by 2030, and to manage these huge sums and seek deals. The Saudi kingdom wants a more diversified economy with less reliance on hydrocarbon revenues and to expand into new industries with its investment funds and by using mergers and acquisitions to scale their premises.
Middle Eastern wealth funds have positioned themselves well as oil prices rose in the wake of Russia's invasion of Ukraine, positioning them for the medium to long term.
Their new weight has pushed funds in the region to become more strategic. These investors are now harder to win and quicker to reject deals that do not fit their nation-building or yield-generating objectives.
Gulf sovereign wealth funds have been able to deploy capital for both a return on investment with yield and for policy objectives, illustrating the size and scale of the transformation in Gulf assets.
Anwar Zibaoui, expert in economics, internationalisation and international affairs.