With large amounts of cash, the Gulf countries are considered the "ATMs of the world", playing a key role in global mergers and acquisitions.
Five years ago, the Saudi Arabian government-organized investment event, dubbed the “Future Investment Initiative,” was dubbed “Davos in the desert” and was devoid of American investors. Wall Street CEOs withdrew after the US accused the country of being behind the deaths of two of its journalists.
But this year, next month's Riyadh conference, hosted by Saudi Crown Prince Mohammed bin Salman, is expected to be so crowded that CEOs will have to pay $15,000 each to attend.
A guest attends the Future Investment Initiative conference in Riyadh, Saudi Arabia on October 25, 2022. Photo: Reuters
Demand for capital from the Gulf state has been rising since 2022, as money from elsewhere has tightened. At last year’s conference, Yasir Al Rumayyan, head of Saudi Arabia’s Public Investment Fund (PIF), joined a roundtable discussion with the heads of two of the world’s largest investment management firms, Blackstone CEO Stephen Schwarzman and Bridgewater Associates founder Ray Dalio. The top names in venture capital were also there, including FTX CEO Sam Bankman Fried, who came looking for funding.
Ben Horowitz, co-founder of US venture capital firm Andreessen Horowitz, said at a PIF-sponsored conference this spring that Saudi Arabia is a “startup nation” and called Crown Prince Mohammed a “founder” who is creating a new culture and a new vision for the country.
Middle Eastern countries now have an opportunity to appear on the world financial stage and expand their global influence. Just when traditional Western investors are being deterred by rising interest rates and are pulling back from private investments, the Middle East is in the midst of an energy boom. This has left them flooded with cash. The region’s sovereign wealth funds have become “ATMs” — pumping money into private equity, venture capital and real estate funds that have struggled to raise money elsewhere, according to the WSJ .
The mergers and acquisitions (M&A) market has seen increasing interest from the Gulf. Notable recent deals include an Abu Dhabi fund buying Fortress Investment Management for more than $2 billion, and a Saudi fund buying Standard Chartered’s aviation unit for $700 million.
Companies and funds overseen by Abu Dhabi National Security Adviser Sheikh Tahnoun bin Zayed Al Nahyan have been racing to buy Standard Chartered and investment bank Lazard. They have also recently struck deals to buy a $1.2 billion British healthcare company and take a controlling stake in a Colombian food giant worth nearly $6 billion.
Peter Jädersten, founder of fundraising consultancy Jade Advisors, said it was becoming harder to raise money elsewhere. “Everyone wants to go to the Middle East now – it’s like the old gold rush in America,” he said.
Fund managers flock to the Middle East and often wait for opportunities in the lounges of sovereign wealth funds. Managers from Silicon Valley and New York are a near-constant presence in the white marble lobby of the Four Seasons Abu Dhabi and other top hotels.
The Gulf’s new dominance is most evident in private equity investments. Figures from two of the region’s largest sovereign funds reflect that. At Saudi Arabia’s PIF, commitments to “investment securities”—a category that includes private funds—rose to $56 billion in 2022, up from $33 billion a year earlier. Abu Dhabi’s Mubadala Fund reported doubling its commitments to $18 billion in 2022.
Private equity giants TPG, KKR and Carlyle Group say interest from the Middle East remains strong while other parts of the world have declined. At a conference in June, Carlyle CEO Harvey Schwartz said Middle Eastern investors were “very proactive, very active.”
While the region has picked up, capital from traditional Western investors has fallen, as higher global interest rates have taken a toll on much of their portfolios – particularly stocks and bonds.
Investors poured $33 billion into U.S.-based venture capital funds in the first half of 2023, less than half the $74 billion in the same period in 2021, according to PitchBook. Global fundraising across all private funds fell 10% last year to $1.5 trillion, according to Preqin.
Many in the industry expect the decline to persist. “It has become much harder to raise capital over the last 12 months,” said Brenda Rainey, executive vice president at Bain & Co., which advises private equity funds.
In contrast, the boom in Gulf investment deals has been driven by two factors. First, rising energy prices, partly due to the conflict in Ukraine, have brought tens of billions of dollars to the region’s oil-dependent wealth funds.
At the same time, Saudi Crown Prince Mohammed and other top UAE officials are keen to develop greater influence on the world stage – in geopolitics, finance and sports. They are pumping more money into state coffers to make deals.
The intersection of politics and finance in the region has made Saudi Arabia, the UAE and Qatari funds major financial backers of two key Trump administration figures: Jared Kushner and former Treasury Secretary Steven Mnuchin, together raising billions of dollars from them.
Fund managers say Gulf funds have pushed their U.S. counterparts to open offices in the Middle East to make it easier to get investment. U.S. investment firm BlackRock said it would set up a team in Riyadh to boost investment in infrastructure projects in the Gulf.
New York-based Millennium Management set up an office in Dubai in 2020, and others have since followed, including private equity firm CVC Capital Partners and ExodusPoint Capital Management — the largest hedge fund startup ever with an initial capital of $8 billion. Europe’s Tikehau Capital and Ardian have both set up dedicated teams in Abu Dhabi.
US alternative investment manager Pretium has hired an industry veteran in Dubai. Dalio Family Office, a wealth management firm, has also set up an office in Abu Dhabi. Rajeev Misra, a longtime SoftBank backer, has secured more than $6 billion in commitments for a new joint venture with several Abu Dhabi-linked investment funds. They are moving their offices from the UK to the UAE.
Tiger Global’s venture capital arm struggled to raise money for its latest fund, repeatedly cutting its target by billions of dollars. Losses and a bleaker fundraising environment have kept many U.S. investors away. But the firm has found a savior in Sanabil, a unit of PIF. This spring, Sanabil added Tiger to its public list of fund managers it has backed, along with Peter Thiel’s Founders Fund and Andreessen Horowitz.
Ibrahim Ajami, head of startup investments at Abu Dhabi's state fund Mubadala, said the current global environment gives Mubadala the ability to be "very thoughtful and selective" about which funds to fund.
He said Mubadala could negotiate terms that would allow it to buy stakes in the fund manager itself or invest alongside others. “What we are doing is going deeper, focusing and engaging with a select group of managers,” he said.
Phien An ( according to WSJ )
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