The Iran war had little to no impact on the investment appetite of the Gulf's sovereign wealth funds, with most of the capital from the hydrocarbon-rich sovereign investors during the second quarter flowing into developed market assets.
Most state-controlled funds in the six-member Gulf Co-operation Council economic bloc, managing $5.7 trillion in aggregate assets, have maintained the pace of quarterly investments, industry specialist Global SWF said in its June report.
The continued flow of funds has upended broader market and analysts' expectations of tightening of sovereign spending due to wartime economic uncertainty.
“These vehicles … have shown no sign of slowdown (yet), with a stronger average pace in the past quarter, than in the five years before the start of the war,” Global SWF said on Monday.
Four of the five most prolific spenders in the region: the Abu Dhabi Investment Authority (Adia), Mubadala Investment Company and L’imad in the UAE, and Saudi Arabia’s Public Investment Fund have maintained their record of investment over the past five years, the report found.
Only Qatar Investment Authority has “decreased its pace, with about $2 billion shy per quarter since March 1”, it said.
US and Israeli strikes on Iran, and Tehran's attacks on its Arab neighbours, which began on February 28, have disrupted businesses and hit the travel, tourism and hospitality sectors in the region.
Iran’s forced closure of the Strait of Hormuz, through which a fifth of the world’s oil normally passes, has triggered a global energy crisis, stoking fears of inflation and a slowdown in the world's economy.
Momentum continues
However, despite the uncertainty, cross-border deal-making, investment flows in and out of the region and long-term capital commitments remain uninterrupted.
The Gulf region boasts some of the biggest sovereign wealth funds in the world that invest on behalf of the regional governments to generate long-term returns.
The UAE, the Arab world’s second-largest economy, is home to many state-investors including Adia, Mubadala Investment Company and newly created investment holding platform L’imad in Abu Dhabi and the Investment Corporation of Dubai.
The Emirates is the largest sovereign investor in the Middle East, and is ranked fourth globally by Global SWF in terms of total sovereign assets that hit $3.08 trillion in March.
Adia, which does not disclose its assets, is one of the primary investment institutions that invests on behalf of the Abu Dhabi government. It is the largest sovereign wealth fund in the Gulf, with assets of about $1.1 trillion, according to Global SWF.
The fund, which marked its 50th anniversary this year, makes direct and indirect investments across asset classes including equities, fixed income, infrastructure, private equity and property across continents.
Capital flows
While most sovereign investors in the Gulf region continue to invest in developed market assets, Adia as well as the PIF in Saudi Arabia, the second-largest Gulf sovereign fund with asset approaching $1 trillion mark, prefer emerging market opportunities, according to Global SWF.
“The capital has continued to flow into US companies and funds, with only Adia and PIF showing a preference for China and other emerging markets,” the report said.
Post Iran war, Saudi Arabia’s PIF has invested $6.1 billion in emerging market, more than double of $2.43 billion capital it has deployed in developed market assets.
Adia has invested $3.32 billion in emerging markets, while $1.58 billion has gone to developed market investment opportunities, according to Global SWF data.
Mubadala, Abu Dhabi’s strategic investment arm, whose assets under management hit Dh1.4 trillion ($385 billion) at the end of the last year, has made a several investments since the beginning of the war.
More than $5.6 billion of Mubadala capital has been invested in developed markets, while it has invested $330 million into emerging market opportunities.
L’imad has also flowed the trend with $1.42 billion flowing to developed markets while $1.15 billion is allocated to emerging market assets. Qatar’s QIA invested $3.39 billion to developed markets during the period, while a fraction of that, $60 million, was invested in emerging markets, according to latest Global SWF data.
