Photo: depositphotos
Key changes in the global financial system
Apollo, Blackstone and other major wealth management firms are overhauling established practices to get a slice of the $4 trillion Gulf sovereign wealth. In the financial circles of the Middle East, there is increasing talk of a change in the balance of power in the upper echelons of big finance.
The old days, when private equity giants and hedge fund managers flew to the Gulf, shuttling between five-star hotels and office towers in Abu Dhabi, Doha and Riyadh, and then returning with huge checks for their latest funds, are already gone. in the past
Sitting atop nearly $4 trillion and acutely aware of their importance to Western capital markets, the Middle East’s largest sovereign wealth funds are increasingly asking asset managers what they will do in return for investment. These firms are calling for, and in some cases demanding, more meetings in the Gulf, opening local offices and attracting more people to live and work in the area.
Mark Rowan. Photo: Bloomberg
Adaptation to new conditions
For example, Apollo Global Management Inc. sent around 200 people to Abu Dhabi earlier this year for corporate events and high-level meetings with Mubadala and other local partners. Blackstone Inc. allows more investors from public funds to be trained in their teams.
Interviews with investors, lawyers and intermediaries in the region show that a group of sovereign wealth funds in countries such as Saudi Arabia, the UAE and Qatar are displaying their financial power in a way not seen before. The growing influence of these Middle Eastern groups is bound to undermine the economics of what has traditionally been one of the most lucrative corners of the investment industry.
Photo: AA
Challenges for Wall Street
Firms are forgoing their typical management fee to secure commitments for their latest funds. The biggest sovereign wealth funds are also revising their ties, focusing on fewer asset managers. That could be a boon for prominent financiers with long-standing connections, but it could also raise tensions in a part of the world where most decisions are made by royals and their top advisers.
In particular, the beginning of the war between Israel and Hamas put financial diplomacy to the test. Some fund managers in the Middle East were disillusioned with American billionaires, including Larry Fink of BlackRock Inc. and Apollo’s Mark Rowan, because of their public pro-Israeli statements.
Yazid Al Humid (right to left), PIF Governor Yasir Al Rumayyan and BlackRock’s Larry Fink sign the agreement in Riyadh on April 30. Photo: PIF
Changing the rules of the game
PIF, which manages $925 billion, is considered particularly aggressive in seeking a more prominent position on the world stage. When he bought a stake in London’s Heathrow Airport, he saw an opportunity to get landing slots for his planes and learn how a major international airport works in an effort to turn Riyadh into one of the world’s leading destinations.
Funds are also putting pressure on managers to lower fees and change fee structures so they have an incentive to put money into action rather than just storing it during periods of higher rates.
Diversification of the economy
Gulf countries are investing in US funds to diversify their economies away from oil revenues. In Abu Dhabi, Mubadala focuses on bets that help open doors to a new part of the world or industry, such as artificial intelligence, life sciences and medical technology.
Mubadala has become the first fund in the Middle East to launch its own investment firm, which has already sent shockwaves through Wall Street. After giving about $700 million to investment firm Aquarian Holdings, Mubadala is now discussing plans to lease out some of the investment, offering some to others and collecting commissions for itself.
Geopolitical challenges
Middle East funds have come under increased scrutiny from the Biden administration. Last year, the Committee on Foreign Investment in the United States reviewed several multibillion-dollar deals for threats to national security.
Despite these challenges, companies like BlackRock continue to do big business in the region. The firm has long been backed by Saudi Arabia’s PIF, and recently plans to raise up to $5 billion from the fund for investments in the Persian Gulf and the creation of an investment team in Riyadh.
Financial institutions are forced to adapt to new realities, given the changes in influence and demands from sovereign wealth funds in the Middle East. These changes could dramatically change the landscape of global finance, creating new opportunities and challenges for all participants.
Source: Bloomberg
