ISLAMABAD: If you’ve traveled to the Persian Gulf recently and noted a new swagger to the place, you’re not alone, says Erik Schatzker, editorial director of Bloomberg New Economy....
ISLAMABAD: If you’ve traveled to the Persian Gulf recently and noted a new swagger to the place, you’re not alone, says Erik Schatzker, editorial director of Bloomberg New Economy. “It’s unmistakable. I was there recently and couldn’t help but feel the self-assured confidence and cool sense of authority in my conversations with business leaders and government officials.” The question: What changed?
One obvious answer is Vladimir Putin’s invasion of Ukraine. Because of its sanctions on Russia, the West is now more dependent on Saudi Arabia, Qatar, the United Arab Emirates and Kuwait for oil and natural gas. Geopolitically, that translates into greater power and autonomy for the Gulf Cooperation Council, which also includes Oman and Bahrain. The GCC has maintained a mostly neutral stance on the invasion and refused to join in the sanctions.But there’s more to the story. Thanks in part to the historically high crude prices OPEC engineered in the 15 months since Russia launched its war, the region is not only swimming in petrodollars but increasingly has become the marginal supplier of investment capital to the world.
Among the largest pools of sovereign wealth across the globe, none is growing faster than those of the Gulf states. Together, the Abu Dhabi Investment Authority, the Kuwait Investment Authority, the Saudi Public Investment Fund and the Qatar Investment Authority now manage almost $3 trillion, up 42% in the past two years, according to Global SWF.
By 2030, the Saudis aim to control more than $2 trillion of assets through the PIF alone. By current standards, that would make it the planet’s largest sovereign wealth fund, topping even Japan’s Government Pension Investment Fund, Norway’s Norges Bank and China Investment Corp.That’s why the first and business class sections on flights from London, Paris, New York and San Francisco to Persian Gulf capitals are so consistently full of Western money managers. With little new capital available from institutional investors in advanced economies and the darkening cloud over China, many are making trips to Riyadh, Abu Dhabi, Dubai and Doha multiple times a year, hands outstretched.As Blackstone Group Inc. Chief Executive Officer Steve Schwarzman observed with a smile during the Qatar Economic Forum last month, “It’s fun to be dealing with everybody in that part of the world.” When PIF Governor Yasir Al-Rumayyan convened a conference in Miami Beach two months ago, it drew a cast of 400 financial and business titans.
In the three decades since Schwarzman’s first trip to the region, Persian Gulf sovereign wealth has mostly been entrusted to outside managers such as Blackstone and Carlyle Group Inc. That’s changing, as local investors amass expertise and local governments use capital as a tool to acquire know-how. “You’re starting to see a shift,” Marcelo Claure, the former Softbank chief operating officer, says. “Middle Eastern capital is going straight into companies now. Everyone wants to avoid intermediaries unless they can bring a lot of value.”
Steve Pagliuca, the former co-chairman of Bain Capital, has witnessed the transformation since he started traveling to the Gulf in 2006. The passive approach to investing that the region’s Arab monarchies used to take has been replaced by an eagerness to engage and learn, he said. “They’re very cognizant that the runway for hydrocarbons is only 50, maybe 100 years long,” Pagliuca, now a senior adviser to Bain, explained over coffee at the Fairmont Doha. “They know they have to diversify.” Rather than buy limited-partner interests in funds, Gulf sovereigns want to co-invest with the managers or bypass them altogether by investing in businesses directly.
Lucid Group, the maker of luxury electric cars, is a good example. The Saudi Public Investment Fund bought a $1 billion stake in the company in 2018, injected more capital when Lucid went public in 2021 and now is pumping in a further $1.8 billion to remain its biggest shareholder. In return for that, and billions of dollars in additional financing, incentives and purchase agreements, Newark, California-based Lucid is building a manufacturing plant in King Abdullah Economic City, near the Saudi port of Jeddah.