Sovereign Wealth Funds (SWFs) of Gulf Cooperation Council (GCC) countries have largely benefited from external surpluses generated by the latest energy revenue windfall across the region to increase their global footprint and deepen their foray into global markets through diversified sectoral buys. Although investments in large advanced economies and prominent emerging markets are likely to continue in the next few years, S&P Global Market Intelligence assesses that GCC SWFs will also recycle part of the petrodollar inflows in peer Middle East and North African (MENA) economies in need of external financing.

Key findings

  • Although external surpluses across the GCC are likely to moderate in tandem with energy prices in the near term, they should remain comfortable with the aggregated GCC current account surplus forecast by S&P Global Market Intelligence at 9% of GDP in 2023 and 6% of GDP in 2024. This means that funds will continue flowing into deeppocketed SWFs, providing additional investment opportunities domestically and abroad.
  • GCC SWF assets under management have grown by 20% on average in the past couple of years to reach a high of around US$4 trillion today, the equivalent of approximately 37% of global SWF assets under management (AUMs), as per Global SWF statistics. Their size is almost equivalent to the sum of all AUMs of Asia, Latin America, and SubSaharan Africa SWFs.
  • GCC SWFs appear to have become go-to investors in difficult times. GCC state-owned investors (SOIs, including SWFs and public pension funds) have deployed around US$83 billion of fresh capital during 2022. Among the world’s 10 largest investments on behalf of SOIs during 2022, five were from GCC sovereign investors (broken down into 62% from the UAE, 28% from Saudi Arabia, and 10% from Qatar). For their strategic buys, GCC SWFs are not only relying on capital injections from governments, but also on asset sales.
  • We expect continued foreign currency generation will allow SWFs of the region to extend their foray into diversified sectors and geographies in the next few years. We are also likely to see a recycling of GCC petrodollar inflows into MENA countries and other emerging markets that present interesting investment opportunities and need external funding or are vulnerable to current geopolitical, economic, and monetary shocks. Egypt and Turkey are a case in point.

Drivers of fast-paced growth

GCC governments have benefited from enhanced liquidity buffers during the better part of 2022, thanks to the surge in energy-derived revenues following Russia’s invasion of Ukraine and international sanctions on Russia. Enhanced liquidity amid the latest energy revenue windfall has enabled GCC governments to spend on investments aimed at diversifying their economies away from oil and gas in line with their national visions and strategic priorities, thereby boosting growth of the real economy through the investment multiplier effect.

S&P Global Market Intelligence estimates real fixed investment in the GCC to have grown by 15.9% in 2022 amid surging oil revenues, and to continue expanding albeit at a slower pace in the near term (+4.4% in 2023 and +5.1% in 2024) as energy revenues moderate.

At the same time, external surpluses feed into deep-pocketed SWFs, creating further investment opportunities domestically and abroad. The aggregated 2022 current account balance of GCC countries surged to a 10-year high of US$369 billion, or 16.9% of GDP. Even though energy prices have moderated, they remain fairly high by historical standards. Current account surpluses are therefore expected to moderate but remain comfortable at 8.6% of GDP in 2023 and 6.4% of GDP in 2024, as per our July forecasts. This is expected to lead to further injections of capital into the region’s SWFs.

GCC SWFs equivalent to Asia, Latin America, and Sub-Saharan Africa peers combined

GCC SWFs play a pivotal role in creating domestic employment opportunities and fueling growth, and in managing the transition to economies no longer reliant — or much less so — on black gold, a longer-term aim. Most SWFs focus both on domestic and foreign investments. They are key to achieving their governments’ national development strategies and contribute to deploying national wealth in domestic sectors of interest.

As a way of example, Saudi Arabia’s Public Investment Fund (PIF)’s domestic assets and securities are estimated to have accounted for 71% of its total portfolio at end-2022, as per Global SWF. Its sources of funding include assets transferred by the government, cash injections from the government, loans and debt capital markets funding, and retained earnings from its expanding investment base. Authorities have big expansion plans for the fund, both internationally and at home, where it is investing onshore to support authorities’ development ambitions. It is a major driver of the Saudi economy’s transformation in line with Saudi Vision 2030. Major projects underway domestically mostly consist of NEOM, the Red Sea Project, Qiddiya Project, and the Roshn Project. Besides MENA investments, it has expanded internationally into Europe, the Americas, Asia, and Africa; assets are diversified by sectors of activity, focusing on IT, real estate and infrastructure, healthcare, transportation, consumer services, and other strategic sectors, as per company releases. It strives to grow its AUMs to US$1 trillion by end-2025 and US$2 trillion–US$3 trillion by 2030.

GCC SWFs are managing close to US$4 trillion worth of assets, when combining all the Global SWF-listed sovereign wealth funds out of Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain, and Oman. The size of GCC SWFs, measured by total assets under management, grew by 18% in 2022, as per Global SWF data. Today, GCC SWFs account for roughly 37% of global SWF AUMs and are practically equivalent in size to all peers in Asia, Latin America, and SubSaharan Africa combined.

Among the 10 largest SWFs around the world, five are in the GCC region. Saudi Arabia’s PIF, the Abu Dhabi Investment Authority (ADIA), the Kuwait Investment Authority (KIA), the Qatar Investment Authority (QIA), and Investment Corporation of Dubai (ICD) hold combined assets under management estimated at US$3.3 trillion, according to Global SWF.

Contrary to the global financial crisis era, GCC SWFs argue that they are pursuing strategic buys rather than opportunistic buys, in line with their long-term national visions. They played an important role domestically in supporting and stabilizing their banking systems during and after the global financial crisis. They are now much larger than they were 15 years ago, but also more experienced with increasingly sophisticated asset allocation strategies.

Record petrodollar-fueled spending spree

Investments realized by GCC sovereign investors surged by 27% during 2020, at the start of the COVID-19 pandemic, to US$49 billion, as the GCC snapped up distressed assets and stakes in hard-hit companies and sectors. However, that was nowhere near the high of US$83 billion deployed in 2022, during a large spending spree driven by surging petrodollar inflows — more than four times the aggregated amount deployed in 2018. GCC SWFs appear to have become go-to investors in difficult times for the global economy and markets.

Five of the world’s 10 biggest spending SOIs of 2022 were from the GCC and they deployed approximately US$74 billion on aggregate last year, according to Global SWF. Out of these five GCC SOIs, the United Arab Emirates accounted for 62% of total capital deployed in 2022 (through three funds, namely ADIA, Mubadala, and ADQ). They were followed by Saudi Arabia with 28% (through the PIF), and Qatar with 10% (through QIA), as per the same source.

SWFs of the region are utilizing part of the additional inflows to make strategic buys in advanced economies, mostly in the United States and Europe (including the United Kingdom). However, the region’s SWFs have not only gotten cash by relying solely on government-transferred oil and gas receipts; they also were the most active sellers of holdings in 2022.

Out of the top 15 divestments by SOIs last year tracked by Global SWF, 11 came from or involved GCC SOIs, for a combined amount of US$32 billion (including one joint divestment with non-GCC SOIs), the equivalent of close to 39% of investments realized by GCC sovereign investors during the same year.

Relentless foray into global markets

GCC SWFs are currently striving to expand their global footprint by investing in various geographies and sectors. India and China — and other Asian countries — are on the radar screens of GCC SWFs at a time of deepening economic, trade, and diplomatic ties. A few of them have made headlines in 2023, particularly PIF and ADIA. ADIA purchased a stake in Adani Enterprises (India)’s US$2.5 billion secondary share offering. ADIA and Swedish fund EQT announced in Q2 2023 a £4.5 billion (US$5.6 billion) deal to acquire Dechra Pharmaceuticals (UK), a veterinary pharmaceuticals company, whereby the Abu Dhabi-based SWF will own a 26% stake and the Swedish fund a 74% stake. In July, ADIA said it teamed up with other investors to buy a portfolio of 27 Japanese hotels from Daiwa House Industry for US$900 million, amid a continued recovery of global tourism activity from the COVID-19 pandemic downturn phase. ADIA also bought additional shares in China’s Zijin Mining and appeared in the top 10 shareholders list of China Shenhua Energy in 2022, among other investments. ADIA also ventured further into India by taking a 20% share in IIFL Home Finance through a subsidiary mid-2022.

PIF has made several investments in the gaming industry in the past few months, by acquiring stakes in Japan’s Nintendo to become its largest foreign shareholder, Chinese e-sports company VSPO, and US-based Scopely in a US$4.9 billion takeover deal. Also, it said it will inject capital into the newly agreed-to golf company aiming to unify the game of golf and merging the PGA TOUR, DP World Tour, and PIF-owned LIV Golf. PIF will initially be the exclusive investor in the new company. PIF-subsidiary Lucid Motors, based in the US, said in Q2 2023 that the SWF agreed to inject a further US$1.8 billion in a private placement. Furthermore, PIF set up in May 2023 the Saudi-Iraqi Investment Company with US$3 billion in capital. The new company will invest in infrastructure, mining, agriculture, real estate, and financial services, among others. It also signed a Memorandum of Understanding in July 2023 with the Oman Investment Authority to expand cooperation and investment between the two SWFs and enable new investments in Oman’s economy.

Mubadala announced in May its intention to acquire a majority stake in US-based Fortress Investment Group, a credit and asset investor, from SoftBank Group. In April, Mubadala became an anchor investor in a US$630 million listing of India-based Cube Highways Trust, an infrastructure investment trust, along with a Canadian pension investment manager, thereby enhancing its exposure to India’s expanding infrastructure market. Elsewhere in the region, Bahrain’s Mumtalakat purchased a further stake in carmaker McLaren from PIF and Ares Management in June 2023 for £400 million (US$510 million).

Among other SWF investments in Asia, QIA announced in 2022 its financial backing (up to US$1.5 billion) of Bodhi Tree, a new platform that seeks to invest in media and consumer technology opportunities in Southeast Asia, with a particular focus on India, as per QIA releases.

Going green

Green investments and net zero carbon emission targets have also been on the radar screens of GCC SWFs; several have invested in renewables lately. For instance, PIF and Mubadala lately purchased stakes in Germany’s Skyborn Renewables. Separately, Mubadala, together with Blackrock Real Assets, snatched a stake in India’s Tata Power Renewables for US$525 million a few months ago.

In November 2022, Oman Investment Authority (OIA) signed a Memorandum of Understanding with Saudi Arabia’s ACWA Power to explore the feasibility of investing up to 10% in the development, construction, and operation of Egypt’s 1.1 GW Suez Wind Energy Project, according to OIA statements. Earlier this year, Mubadala said it will invest close to US$2.5 billion in the next 10 years to produce renewable diesel and sustainable aviation kerosene in Brazil, aiming to lower carbon emissions by up to 80%.

Lending a helping hand within MENA

Although GCC SWFs’ foray into global markets will likely continue in the near term, we are also likely to see a recycling of GCC petrodollar inflows into MENA countries and other emerging markets that present interesting investment opportunities and need external funding or are vulnerable to current geopolitical, economic, and monetary shocks.

GCC governments might also directly support peer governments in neighboring countries, through lending or deposits at the central bank (e.g. Egypt, Turkey, and Pakistan).

Qatar, the UAE, and Saudi Arabia have been closely eyeing Egypt’s asset sale program. Lately, the UAE’s ADQ recently bought US$800 million worth 25–30% stakes in three Egyptian government-owned oil and petrochemical companies, namely Egyptian Ethylene and Derivatives Company (Ethydco), Egyptian Drilling Company, and Egyptian Linear Alkyl Benzene (ELAB). Egypt intends to raise more funds in FY 2024 as part of its Asset Monetization Program aimed at raising much-needed foreign currencies and shoring up State finances.

Turkey is also looking to raise funds to help meet its external financing needs. It signed approximately US$51 billion worth of deals with the UAE aimed at diversifying and expanding the framework of the existing Comprehensive Economic Partnership Agreement. ADQ committed US$8.5 billion worth of bonds to support the reconstruction of earthquake-hit areas and US$3 billion worth of funds earmarked to provide credit financing solutions to Turkish exporters. Turkey also announced Saudi investment commitments among other deals, recently. Turkey is reportedly looking at deep-pocketed GCC SWFs for potential buys into Turkish assets.

As such, with large liquidity buffers ensuring sufficient firepower to continue snapping up assets in other parts of the world, GCC SWFs are poised to grow further. In the years to come, the region’s SWFs will likely play an increasingly leading role in diversifying their respective economies and preparing them for the post-oil era (in the longer term), while expanding economic and financial ties with countries in need of funding.

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