Gulf Wealth Funds Raising Private Equity Investments

Sovereign wealth funds in the Gulf Arab region are raising their allocations to private equity investments at a faster rate than other types of investment, U.S. fund manager Invesco says in a new study.

“Contrary to popular perceptions these vast state funds are not piling into global property and global infrastructure projects,” Nick Tolchard, head of Invesco Middle East said.

“As well as a rise in co-investment deals, over and above private equity funds we are seeing an emergence of direct private equity investments coming out of SWFs.”

Large sovereign funds have been looking for alternative investments to give better returns than low-yielding staples such as U.S. Treasuries.

Average allocations to private equity by the region’s developmental wealth funds have increased in the last 12 months by 33 per cent, whereas investment funds have raised their private equity allocations by 13 per cent in the same period, the study showed.

In comparison Invesco said the percentage rise in other alternative investments such as real estate and infrastructure was only in single-digits.

Invesco classifies the funds as “developmental” or “investment” depending on whether they are engaged in investment activities that contribute to the progress of the local economy or aiming to invest for future generations.

The Gulf region is home to some of the world’s most prominent sovereign funds such as the Abu Dhabi Investment Authority (ADIA), and the Qatar Investment Authority, which are also two of the the most active funds, holding stakes in a range of large European corporates.

Funds like Abu Dhabi’s state-owned vehicle Mubdala has as its main mandate to invest to generate employment opportunities for the state and contribute to local economic output, while sovereign funds such as ADIA and Kuwait Investment Authority (KIA) invest for future generations.

Mubadala already owns a stake in U.S. private equity firm Carlyle, while KIA in Kuwait is a stakeholder in CVC Capital.

At the peak of the global financial crisis some of the large Gulf funds also stepped in to invest in high-profile financial names such as Citigroup Inc, Credit Suisse and Barclays. They are also heavy investors in high-end real estate in Europe and own trophy assets such as London’s landmark Harrods store.