A major government-owned investment fund in the Gulf is breaking with tradition by redirecting more of the region's windfall oil revenues into local markets and direct investments, a trend analysts say others may follow.
The funds have traditionally sent nearly all of their funds abroad to the US and Europe, aiming to diversify risks away from those they face at home - but recent instability in western financial markets is making Middle East investments more appealing.
The Kuwait Investment Authority (KIA), among the largest sovereign wealth funds (SWFs) in the world, said on Monday that it would begin boosting its contributions to funds active in the local market.
The shift in strategy comes amid signs that even the most established US banks are not immune to the latest round of financial contagion. At the same time, Gulf markets are showing signs that they would be as good a place as any to weather the financial storm.
SWFs around the world manage an estimated US$2.15 trillion (Dh7.9tn) in assets. As a cash shortage seizes global markets, these funds' ability to quickly inject enormous amounts of liquidity into a market has made them among the world's most powerful economic players.
"In terms of new investments outside the region, they will probably... wait a little bit," said Gundi Royle, the managing director of investment banking at The National Investor. "Here in the UAE, the core industries will continue to be good places for investment, irrespective of the financial crisis."
During the past year, several large Gulf funds have used the fallout from the credit crisis as an opportunity to snap up large quantities of western bank stocks at bargain prices. However, as US financial stocks continue to fall, some sovereign funds are facing criticism for sending local money abroad.
The Abu Dhabi Investment Authority (Adia), which made international headlines with its purchase of a $7.5 billion stake in Citigroup last November, has lost nearly half of that investment since the stock sank from $30.70 at the time of purchase to $15.24 on Monday. The KIA purchased $5bn of preferred stock in Citigroup and Merrill Lynch in January. Both stocks have fallen significantly since the purchases.
China's government also faced a particularly strong domestic backlash after it suffered significant losses in a string of high-profile purchases of US financial firms, beginning last year. Similarly, the Korea Development Bank backed out of a possible deal with Lehman Brothers, after facing opposition back home.
Although SWFs are notoriously secretive about their investment strategies, the funds say they are investing in the long term and are unfazed by month-to-month, or even year-to-year fluctuations.
The UAE sovereign funds managed their money "like a portfolio", Ms Royle said. "You're not all of a sudden going to go overweight on emerging market risk because the US is doing poorly. Still, they are probably going to re-weight their portfolio a little bit more towards entry opportunities than in mature market entries. They are consistently looking further and further east."
Fabio Scacciavillani, an economist with the Dubai International Financial Centre, also said Gulf SWFs were likely to begin focusing more on local markets amid the recent sell-off. "Local stock exchanges have been victims of a contagion effect. Equities as an asset class are being battered," he said. "But if you look carefully at the balance sheets, you can definitely find some good deals in the local markets."
As oil prices continue to fall from their July high and widespread speculation in the property market is beginning to raise the spectre of a downturn, there is hope that Gulf funds may be able to rescue local markets, should they face dramatic shocks.
Daniel Kaye, the senior economist at the National Bank of Kuwait, said the KIA move might be an attempt to shore up local equity markets, given that the Kuwaiti Stock Exchange had fallen more than 20 per cent from its high in June.
There is speculation that other SWFs across the region may face internal political pressure to use their enormous amount of money to shore up collapsing local stock markets, as KIA may have done. But Udo Schaeberle, a fund manager at BHF Bank, said he doubted that would happen.
"Sovereign wealth funds didn't do it in the last crisis in 2006, and the crisis now is not as bad as last time," Mr Schaeberle said. "Lots of people complained that Adia didn't do anything in 2006, but this time things are much more healthy."
tpantin@thenational.ae
Mountain%20Boy
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What can you do?
Document everything immediately; including dates, times, locations and witnesses
Seek professional advice from a legal expert
You can report an incident to HR or an immediate supervisor
You can use the Ministry of Human Resources and Emiratisation’s dedicated hotline
In criminal cases, you can contact the police for additional support
Teaching in coronavirus times
THE BIO
Bio Box
Role Model: Sheikh Zayed, God bless his soul
Favorite book: Zayed Biography of the leader
Favorite quote: To be or not to be, that is the question, from William Shakespeare's Hamlet
Favorite food: seafood
Favorite place to travel: Lebanon
Favorite movie: Braveheart
Killing of Qassem Suleimani
How to avoid crypto fraud
- Use unique usernames and passwords while enabling multi-factor authentication.
- Use an offline private key, a physical device that requires manual activation, whenever you access your wallet.
- Avoid suspicious social media ads promoting fraudulent schemes.
- Only invest in crypto projects that you fully understand.
- Critically assess whether a project’s promises or returns seem too good to be true.
- Only use reputable platforms that have a track record of strong regulatory compliance.
- Store funds in hardware wallets as opposed to online exchanges.
Armies of Sand
By Kenneth Pollack (Oxford University Press)
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Brief scoreline:
Burnley 3
Barnes 63', 70', Berg Gudmundsson 75'
Southampton 3
Man of the match
Ashley Barnes (Burnley)
The specs: 2018 Mercedes-Benz E 300 Cabriolet
Price, base / as tested: Dh275,250 / Dh328,465
Engine: 2.0-litre four-cylinder
Power: 245hp @ 5,500rpm
Torque: 370Nm @ 1,300rpm
Transmission: Nine-speed automatic
Fuel consumption, combined: 7.0L / 100km
Two-step truce
The UN-brokered ceasefire deal for Hodeidah will be implemented in two stages, with the first to be completed before the New Year begins, according to the Arab Coalition supporting the Yemeni government.
By midnight on December 31, the Houthi rebels will have to withdraw from the ports of Hodeidah, Ras Issa and Al Saqef, coalition officials told The National.
The second stage will be the complete withdrawal of all pro-government forces and rebels from Hodeidah city, to be completed by midnight on January 7.
The process is to be overseen by a Redeployment Co-ordination Committee (RCC) comprising UN monitors and representatives of the government and the rebels.
The agreement also calls the deployment of UN-supervised neutral forces in the city and the establishment of humanitarian corridors to ensure distribution of aid across the country.
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
The%20specs
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Company profile
Company name: Suraasa
Started: 2018
Founders: Rishabh Khanna, Ankit Khanna and Sahil Makker
Based: India, UAE and the UK
Industry: EdTech
Initial investment: More than $200,000 in seed funding
The specs: 2018 Ducati SuperSport S
Price, base / as tested: Dh74,900 / Dh85,900
Engine: 937cc
Transmission: Six-speed gearbox
Power: 110hp @ 9,000rpm
Torque: 93Nm @ 6,500rpm
Fuel economy, combined: 5.9L / 100km
Fixtures
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The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
Emergency
Director: Kangana Ranaut
Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry
Rating: 2/5
COMPANY%20PROFILE
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Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
Company%20Profile
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'HIJRAH%3A%20IN%20THE%20FOOTSTEPS%20OF%20THE%20PROPHET'
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More from Rashmee Roshan Lall
Dirham Stretcher tips for having a baby in the UAE
Selma Abdelhamid, the group's moderator, offers her guide to guide the cost of having a young family:
• Buy second hand stuff
They grow so fast. Don't get a second hand car seat though, unless you 100 per cent know it's not expired and hasn't been in an accident.
• Get a health card and vaccinate your child for free at government health centres
Ms Ma says she discovered this after spending thousands on vaccinations at private clinics.
• Join mum and baby coffee mornings provided by clinics, babysitting companies or nurseries.
Before joining baby classes ask for a free trial session. This way you will know if it's for you or not. You'll be surprised how great some classes are and how bad others are.
• Once baby is ready for solids, cook at home
Take the food with you in reusable pouches or jars. You'll save a fortune and you'll know exactly what you're feeding your child.
THE SPECS
2020 Toyota Corolla Hybrid LE
Engine: 1.8 litre combined with 16-volt electric motors
Transmission: Automatic with manual shifting mode
Power: 121hp
Torque: 142Nm
Price: Dh95,900
'My Son'
Director: Christian Carion
Starring: James McAvoy, Claire Foy, Tom Cullen, Gary Lewis
Rating: 2/5
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
