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26 March 2020
INVESTMENT

Gulf sovereign funds expected to shed $300 billion in market turmoil

Middle East sovereign wealth funds accumulated assets above $2 trillion during the past few decades, building a cushion for when oil runs out or revenues drop

Middle East sovereign wealth funds have stakes in Uber Technologies, Barclays and swathes of European and US property/Bloomberg

by Bloomberg

Gulf sovereign wealth funds are channelling some of their billions back to counter the recession triggered by the coronavirus pandemic, on top of a slump in oil prices and meltdown in global markets. According to the Institute of International Finance, the decline in assets could exceed $300 billion this year.

The impact will be felt by Wall Street, where asset managers count on capital from the funds sponsored by Abu Dhabi, Kuwait, Qatar, and Saudi Arabia. Now that these countries need the cashback home, hedge funds and private-equity firms risk losing a substantial piece of business.

Middle East sovereign wealth funds have stakes in Uber Technologies, Barclays and swathes of European and US property.

Saudi Arabia’s Public Investment Fund has also committed giant sums to a Blackstone Group’s US infrastructure fund and Softbank Group’s $100 billion Vision Fund. Other funds in the region also have significant placements with Carlyle Group, BlackRock and KKR & Co.

Exactly how much the funds have placed and with whom remain undisclosed. Most do not even report the value of assets they manage. Abu Dhabi Investment Authority (ADIA) is one of the few that publishes an annual report, and that only includes broad guidance on strategy and performance.

ADIA’s 20-year annualised returns were 5.4 per cent in 2018, the lowest since it began reporting in 2008. Developed market equities, which have crashed as a result of measures to contain the coronavirus, constitute up to 42 per cent of its portfolio.

However, it’s not just the sovereign wealth funds in the Gulf that are suffering, Norway is set to withdraw a record $13 billion from its giant sovereign wealth fund to help pay for stimulus measures. Russia is also likely to draw down on its reserves as it wages an oil price war with Saudi Arabia.

The decline in asset values of the Gulf funds is set to be deeper than the drop in 2015, the last time crude prices collapsed, said IIF.

IIF stated that sovereign wealth funds in Abu Dhabi, Kuwait and Qatar will account for the bulk of the declines this year, with the assets of each set to drop by around $100 billion.

Either way, asset managers may not be able to rely on large allocations of Gulf petrodollars much longer. The International Monetary Fund warned that $2 trillion of savings could be gone in 15 years if governments in the region do not diversify their economies and trim extravagant spending.

 


RELATED STORIES: Abu Dhabi Kuwait Saudi Arabia Uber Technologies Barclays arlyle Group BlackRock KKR & Co Vision Fund Abu Dhabi Investment Authority Public Investment Fund

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