How world sees GCC: Region’s sovereign wealth funds on the rise

Abu Dhabi and Saudi Approach:

If we look at how capital is managed across the GCC, we see two key approaches.

Historically, ADIA was the only proper sovereign investor, since its early inception in London in 1967. In 1984, ADIA created a joint venture with ADNOC, which they called IPIC, to pursue acquisitions overseas – a new kind of strategic fund. This was followed by Mubadala (exchange), which aimed at attracting know-how to the Emirates. And, in 2007, ADIA stripped off its domestic investments into ADIC, which was also financially-driven. Four very different SWFs that co-existed for years until the consolidation of 2016-2018.

Fast-forward to today, and ADQ has emerged as another, very active and versatile strategic investor. But the principle remains the same – different SWFs to cover all bases without, theoretically, overlapping with each other, and different accountability and reporting lines. Elsewhere in the Gulf, the Abu Dhabi approach is followed by Dubai, which lacks an ADIA-like fund because of its more limited oil reserves but has various strategic funds; and by Bahrain, which runs separately the FGR (future fund) and Mumtalakat (strategic fund).

The second approach is the one seen in Saudi Arabia, in which the government consolidates all investment and strategic efforts, and its vision, into a single umbrella, in this case, the Public Investment Fund (PIF).

PIF was actually born in 1971 and is the Gulf’s oldest SWF in its present form and name. However, it was conceived as a development fund that would only support Saudi companies, while the central bank SAMA ran the country’s de-facto SWF with its portfolio of foreign holdings. That all changed in 2015, when PIF was transferred under the Council of Economic and Development Affairs (CEDA), chaired by Crown Prince Mohammed bin Salman Al Saud.

In the past eight years, PIF has become one of the world’s most active (the most active in 2023!) SWFs both at home and overseas, and is a key enabler of the country’s Vision 2030 and transformation. Further, its leaders have no problems in announcing grand plans for the SWF, in using it in its name to buy football clubs or golf leagues, and in sharing its finances publicly given its fundraising efforts, in a rather refreshing fashion.

In 2017, Riyadh set up a second fund, NDF, that would support PIF’s push for Vision 2030, but with a much more domestic and low profile, so many analysts still consider PIF the only “pure SWF” in the Kingdom. Elsewhere in the Gulf, the Saudi approach is followed by Qatar, which consolidates all its efforts under QIA; Kuwait, which does the same with KIA and its entities; and Oman, which merged its two funds into OIA in 2020.

National Champions

Saudi Arabia is developing a range of national champions to advance Vision 2030. PIF has established subsidiaries ranging from agriculture to finance, from industry to infrastructure. Central to the PIF-led development programme is its multi-billion giga-projects, which all have an element of tourism: NEOM, including the Line, Oxagon, Sindalah and Trojena; Red Sea Global; Qiddiya; Roshn; and Diriyah. At present, their value is not capitalised, but when they are completed by 2030, they should boost the fund’s assets under management by tens of billions. The fund also operates several subsidiaries including Sanabil, TAQNIA, Jada Fund of Funds, and STC Ventures that are building their own impressive portfolios, and a 17 per cent stake in Prince Alwaleed’s Kingdom Holding.

An array of in-house businesses have been established across the entire economy as part of an overall strategy to “crowd in” private sector investment, increase local content spend by portfolio companies, increase skills and capacities of local suppliers, and bolster local supply chains. In transportation, PIF launched a $30bn airline Riyadh Air and is building up its own electric vehicle brand Ceer. In industries, it acquired the Saudi Iron and Steel Company (Hadeed) for $3.3bn. And in sports and entertainment, it continues to pursue global portfolios of gaming, golf and football, which it seeks to use as a base for domestic initiatives.

Other Gulf states have looked to consolidating state-owned assets ahead of public listing to drive private investment. Abu Dhabi has mandated Mubadala and ADQ to manage a portfolio of national champions, mostly in infrastructure and energy. The listing of the utilities and energy champion TAQA boosted ADQ’s value, but the fund’s non-TAQA portfolio has also increased from an estimated $36bn at inception to $115bn in 2023. Among those assets received in the past two years are waste manager Tadweer and domestic carrier Etihad, which sustained significant losses before and during the pandemic.

In December 2023, ADQ raised $1bn in the listing of PureHealth, which was formed from the consolidation of the fund’s healthcare assets, including SEHA, Daman, Tamouh, Yas Clinic, and Abu Dhabi Stem Cell Center. This portfolio was expanded with the acquisition of UK-based Circle Health Group. Mubadala has also built a strong healthcare portfolio through Mubadala Health, which it partially sold  to Sheikh Tahnoon-chaired G42, in the launch of M42. Another focus of ADQ is aviation, and the fund integrated Etihad in its aviation portfolio to bolster vertical integration, improve profitability and potentially for future divestment.

The mandate and interaction of Mubadala and ADQ in Abu Dhabi could be similar to the ones adopted by ICD and the newly proposed Dubai Investment Fund in Dubai. Chaired by the UAE Ministry of Finance, the new fund will manage some of the most recent companies being listed, including DEWA, Salik and Dubai Taxi, and potentially, the huge DP World. It is yet unclear the role that Dubai Holding will play in that new scenario.

Oman’s SWF is younger than its Emirati and Saudi counterparts, but is aggressively pushing forward its own process of improving profitability and reducing debt of portfolio companies. The OIA slashed the debt of its portfolio companies by nearly a quarter since 2020, which will make them more attractive when divested. The fund is helping drive the Oman Vision 2040 program by attracting further FDI, which will also be supported by the newly proposed $5.2bn Oman Future Fund. The new fund will be under OIA’s management.

There are signs that Kuwait is following this trend, too. In 2023, the government announced the launch of the Ciyada Development Fund as part of the government’s 2023-27 development programme centered on 107 projects, including a new terminal in Kuwait International Airport as well as port, logistics and tourism projects. It will seek private sector partnerships in a drive to diversify the oil-based economy. The government also transferred $8bn of landholdings to PIFSS with the intention for strategic real estate development, possibly under the ambit of subsidiary the Wafra Real Estate Company, which is developing Failaka Island.

Lastly, Qatar and Bahrain have been quieter on this front lately. The former is going through the hangover of the World Cup and remains with QIA as the umbrella for major national champions, including QNB, Ooredoo, Qatar Airways, Mwani, Qatari Diar, and Nebras Power. The latter uses SWF Mumtalakat to manage a wide range of strategic investments, local impact investments, and government holdings.

Domestic IPOs

In the past six years alone, GCC companies have raised $76.5bn in domestic stock exchanges. This is an staggering figure for the region’s capital markets.

Almost 70% of the 138 GCC companies that went public between 2018 and 2023 chose the Tadawul. The UAE, with ADX, DFM and Nasdaq-Dubai, saw 24 IPOs, while Oman’s MSX saw eight and Qatar’s QSE, four. Boursa Kuwait, which is featured in a Netflix show, and Bahrain Bourse have been more disappointing. The pipeline for 2024 appears to be strong, with Prince Alwaleed potentially listing low-cost airline Flynas in Saudi, and the UAE potentially seeing the IPOs of Spinneys Dubai, and that of Mubadala’s and ICD’s EGA, at last.

In fact, a distinctive feature of IPOs in the GCC is that Sovereign Investors are usually behind the selling party, the buying party, or both – sometimes across borders. Offerings in the UAE have to keep 5% for the Emirates Investment Authority (EIA), which can choose whether to invest or not.