While twenty years ago these SWFs were a more traditional type of investors, prioritizing equity and fixed income instruments, as of recently, they have become more aggressive investors taking large equity positions in international companies across different sectors. This shift in strategies is also due to their increased investment readiness, local teams’ strength, and increased political clout.
What are Sovereign Wealth Funds?
A sovereign wealth fund is a state-owned investment fund investing money generated by the government, often derived from a country's surplus reserves. SWFs aims to provide benefit for a country's economy and its citizens. Popular sources of SWF are surplus reserves from state-owned oil and gas, trade surpluses that may accumulate from budgeting excesses, foreign currency operations, revenues from privatizations, and governmental transfer payments.
When the Middle East emerged as a large supplier of energy in the late 60s, several Gulf Countries established their own SWF, to ensure that oil revenues were invested for the long-term benefit of the national economies. One of the first to be established was the Saudi PIF which began its work in 1971. Under the Saudi Crown Prince, MBS PIF is expected to continue to grow from today’s $620 billion to a $1 trillion dollar by 2025.
Across the 7 funds, since 2008, Gulf SWFs have focused on these two types of funds:
- Future generation funds, focusing on performance, long-term and foreign investment, particularly in Europe, the US and Asia.
- Funds focused on local economic development driven by their impact on their economies, particularly in terms of technology transfer, jobs and wealth creation.
What is happening in the market?
The Gulf region’s largest sovereign wealth funds have been involved in at least $28.6 billion worth of acquisitions outside the Middle East and Africa in 2022, according to data compiled by Bloomberg. That’s 45% more than at this point in 2021 and the most for any corresponding period on record.
Conclusion
As SWF to adjust to the new market conditions, we should expect more GCC WSF co-invest in partnerships with state organizations in destination markets and we should expect more investment in large US tech. Finally, as the GCC countries host or prepare to host global sports events like the FIFA world cup, we should expect more M&A activities across the football space in Europe and in other football mature markets.
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