2015 will prove to be an active year for SWFs (Sovereign Wealth Funds) in the Middle East, says KPMG Report
– UAE is home to one of the largest SWFs in the world
– Low interest rates, evolving investment strategies and a growing appetite for alternative asset classes causing shift in SWF investment strategies
– Strengthening economic linkages – Recent commitments worth USD19 billion from UAE investors across 17 infrastructure projects in Africa
– SWFs in the Middle East are viewing the West with caution and have redirected a portion of their funds back into the Middle East
Middle East Sovereign Wealth Funds (SWFs) have been forced to navigate shifting economic currents at home and abroad as they seek to invest their oil-fuelled capital to generate the best returns for their stakeholders, according to a newly published KPMG report on Sovereign Wealth Funds in the Middle East. The report was published in collaboration with the Institutional Investor’s Sovereign Wealth Center.
Over the past two years, there has been a shift in how the Middle East’s Sovereign Wealth Funds have had to reallocate their assets. The changes are driven by market forces including the unprecedented low-interest rate environment.
Vikas Papriwal, KPMG Partner and Head of Markets said: “While the majority of SWF funds continue to deploy their funds in bonds and global equities, a relatively low interest rate environment, continually evolving investment strategies and a growing appetite for alternative asset classes are resulting in a shift away from what has typically been a passive investment philosophy. The areas of direct investments for SWFs are generally few and chosen with the majority concentrating on infrastructure, real estate and increasingly, private equity.”
The region’s Sovereign Wealth Funds are taking advantage of their scale and long-term investment perspective by allocating more of their assets to real estate such as hospitality, industrial, logistics and retail, as well as funding infrastructure, where yields are higher.
While the Abu Dhabi Investment Authority and the Kuwait Investment Authority have been buying property since the mid-1970s, there has been a marked rise in brick and mortar investments by these funds and their peers from around the Arabian Gulf.
Ashish Dave, KPMG Partner and Head of PE and SWFs said: “UAE is home to one of the largest SWFs in the world, and recently has played a significant role in establishing relations with African countries, resulting in commitments worth USD19 billion from UAE investors, across 17 infrastructure projects. This paves the way for future investments as economic linkages between the UAE and Africa continue to strengthen, in part driven by the investment strategies of local SWFs. Looking forward, 2015 is set to be an active year for SWFs in the region.”
Interestingly, SWFs in the Middle East are viewing the West with caution and as a result, have invested less internationally than they have done in the past while redirecting a portion of their funds from international investments back into the Middle East. This could be due to international forces, such as the Euro zone debt crisis or local factors such as the Arab Spring.
Western governments and organisations looking for capital from the Middle East will need to adapt and demonstrate a deep understanding of what is driving the thinking of SWFs in the region, and be dedicated to making a long-term commitment to building relationships that add value to their investment policy.
The global SWFs currently control an aggregate of approximately US$5 trillion in assets under management (AUM). Of this amount, the GCC SWFs (most notably ADIA, currently the world’s third largest SWF behind the Norway Government Pension Fund and China Investment Corporation) account for approximately 40% of global SWFs by AUM.
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