KUWAIT: The assets under management (AUM) of SWFs in the Gulf region reached a historical peak of $4.1 trillion in 2023 and the transaction value, even if slightly lower than in 2022, amounted $82.3 billion, led by the so-called “Oil Five” (ADIA, Mubadala, ADQ, PIF, QIA), the annual report released by Global SWF said. By 2030, the group of 19 Gulf SWFs could reach $7.6 trillion in assets, and if added the pension funds and central banks in the broader MENA region, that figure could balloon to $11.2 trillion, the report added.

One of the key consistent themes of the year when it comes to sovereign capital has been the prominence of investors from the Gulf Cooperation Council (GCC). One obvious reason is the sustained high level of oil prices: Gulf SWFs have reaped the rewards of the fiscal windfalls and recovered quicker than others from the 2022 financial markets debacle. The other reason is the maturity of the investment landscape, with a wide range of players entering domestic and global markets with a level of sophistication never seen before. This has fueled economic diversification, which is expected to push GCC’s growth to +3.6 percent and +3.7 percent in 2024 and 2025, respectively, according to the World Bank.

The SWF industry in the GCC is anchored by its three largest players that are well over 50 years-old: Kuwait’s KIA (1953), Abu Dhabi’s ADIA (1967) and Saudi Arabia’s PIF (1971). However, there is no shortage of capital beyond them, and there are always new funds and developments that keep things interesting. The inflow of foreign investors working in the region has accelerated, and managers and advisors fly in from around the world every year to attend conferences and meetings, notably between the months of October and March.

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).

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.

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 program 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 capitalized, but when they are completed by 2030, they should boost the fund’s AUM 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 percent stake in Prince Alwaleed’s Kingdom Holding.

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 $36 billion at inception to $115 billion 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.

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 $5.2 billion 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 program 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 $8.0 billion 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, the report added.