How GCC sovereign funds are conquering global markets

State investors accounted for 54 per cent of the $96bn deployed by sovereign funds – the highest rate since 2009

August 3, 2024

GCC sovereign funds dealmaking at 15-year high

Image credit: Justin Setterfield/ Getty Images

Sovereign wealth funds from the GCC region have capitalised on the recent energy revenue windfall to enhance their global presence. The funds use these external surpluses to expand their investments across various sectors in international markets.

GCC state-owned investors use part of the additional inflows to make strategic investments in advanced and emerging market economies across the Americas, Europe and Asia. The sovereign funds reached their highest levels of global dealmaking in about 15 years, in the first half of 2024, deploying $38.2bn across 58 different deals, according to the latest data from consultancy GlobalSWF.

The trend indicates a notable change in the global investment landscape. GCC sovereign funds, notably Saudi Arabia’s Public Investment Fund (PIF), Abu Dhabi Investment Authority (ADIA), and Qatar Investment Authority (QIA), accounted for 54 per cent of the $96bn deployed by sovereign funds—the highest rate since 2009.

Pursuing global deals

The wave of dealmaking by the Gulf sovereign investors began with the outbreak of the Covid-19 pandemic. Once sleepy government-holding companies, the funds are emerging as investment vehicles with global ambitions.

PIF remained the most active sovereign fund in the world in the first six months of the year, fuelled by government asset transfers. Saudi Arabia’s $925bn sovereign fund and private equity group Ardian agreed to acquire a 22.6 per cent and 15 per cent, respectively, stake in London Heathrow Airport for $4.3bn (GBP3.3bn). QIA currently owns a 20 per cent stake in the UK hub.

PIF also agreed to take a 49 per cent stake in Rocco Forte Hotels last December. The luxury hotel chain operates in Italy, Britain, Germany, Belgium and Russia.

Similarly, Abu Dhabi’s Mubadala joined Global Infrastructure Partners in May to invest in industrial chemical producer Perdaman’s $4.2bn (AUD6.4bn) Western Australia Urea project. The fund also made a cornerstone investment in PAG’s Asia Pacific renewable energy platform, its first investment in Japan’s clean energy sector.

Qatar’s sovereign fund also said in May that it plans to make an anchor investment in Ardian Semiconductor, a fund set up by private equity firm Ardian to invest in the semiconductor industry.

Maximising profitability

The foreign investments of GCC sovereign funds have strengthened their substantial liquidity buffers, ensuring they have the financial capacity to continue acquiring assets worldwide.

PIF swung to a profit of $36.81bn (SAR138.1bn) in 2023 compared to a loss of $15.6bn a year earlier, the fund said in a regulatory filing in July, helping the fund cement its position as one of the biggest state-backed investors in the Gulf region.

The fund’s total revenues more than doubled to $88.3bn last year, while its cash reserves rose to $65 billion from $15 billion as of September.

Mubadala, Abu Dhabi’s second-biggest wealth fund, said in its annual report that its assets under management (AUM) rose by 9.5 per cent in 2023 to $302.2bn (Dhs1.11tn).

The wealth fund reported proceeds of Dhs99bn in 2023, a 6.6 per cent year-on-year (YoY) decrease from Dhs106bn a year earlier. This decline was attributed to “divestments of certain legacy assets and capital recycling into priority investment areas.”

Mubadala, which deployed Dhs89bn in sectors including technology, digital infrastructure, life sciences, renewable energy and private credit, said its portfolio mix remained broadly similar YoY, with 38 per cent direct and indirect in private equity, 25 per cent in public markets and 16 per cent in real estate and infrastructure.

Though other GCC sovereign funds operate in secrecy, making it hard to ascertain the exact size of their portfolios, the Kuwait Investment Authority is reportedly on track for one of its best fiscal years on record amid a broad market rally.

The most recent data from Global SWF indicates that the total amount invested by sovereign funds from Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain has decreased in absolute terms. However, as a portion of total state-controlled investment globally, it has increased significantly.

Looking ahead, GCC sovereign funds, which now manage $4.1tn in combined AUM, are set to play an even more prominent role in global markets. Often referred to as the “new bankers to the world,” the funds have emerged as a vital source of capital for struggling Western assets needing fresh investments.