London, Asharq Al-Awsat—Abu Dhabi’s sovereign wealth fund (SWF), the Abu Dhabi Investment Authority (ADIA), is the world’s second largest in terms of overall assets, according to a quarterly list published by the Sovereign Wealth Fund Institute.
The ADIA, which has more than 773 billion US dollars in assets, previously occupied the top spot in 2012.
It is now followed in third place by Saudi Arabia’s SAMA Foreign Holdings (SAMA) fund, which has some 675.9 billion dollars in assets.
The list showed Middle Eastern SWFs made up 18 of the world’s 75 largest, with 35 percent of the world’s SWFs based in the region.
Only Asia, which represents 40 percent of the world’s SWFs, accounted for more.
Regarding competition between Asian and Gulf SWFs, Jamal Al-Kishi, chief executive of Deutsche Bank in Saudi Arabia, referred to a difference in management methods, and told Asharq Al-Awsat: “Asian funds are more professional and prominent in the international arena, despite the size of Gulf funds and their role in competing for international investment.”
Kishi said Middle Eastern SWFs needed to be managed differently in order to compete more effectively with their Asian counterparts. “There is a great difference between the way Asian funds and Gulf funds are managed,” he said. “Not only in terms of the source of capital, but also the way that capital is spent and invested.”
“For instance, the Abu Dhabi [ADIA] or Qatar [The Qatar Investment Fund], or even the Saudi fund [SAMA Foreign Holdings], do not have clear enough data about the types of investments or the volume of profits and losses,” he said.
Despite this, of the top 10 largest SWFs by assets, four are Middle Eastern, with the Kuwait Investment Authority and the Qatar Investment Authority—the world’s sixth and 10th largest, respectively—joining SAMA and ADIA in making the top 10.
Most of these Middle Eastern SWFs—particularly those from the Gulf—originate from oil and gas. Oil and gas-based SWFs account for five out of the world’s 10 largest funds, and 59 percent of all the world’s funds, with the world’s largest fund, Norway’s Government Pension Fund Global, also deploying a surplus gained from the country’s petroleum income.
SWFs—state-owned funds deploying surplus assets in a variety of investments—have gained a higher profile since the 2007–2008 financial crisis, becoming active players in the investment world within an increasingly wary climate.
Most experts see the emergence of SWFs and their role post-2008 as positive signs for global investment. A recent report on SWFs by strategy consultant NMG Consulting said they were likely to take on a major role in shaping the global economy in the future.
Speaking to Asharq Al-Awsat, Dr. Abdul-Rahman Al-Sultan, a Saudi economist, said that those SWFs that acted as the backbone of financial markets during the global crisis were, since the start of the new year, being forced to change their investment strategies in line with changes in international economies.
These SWFs now needed to reevaluate their risks, especially with rising fears over emerging market currencies and plans to withdraw financial incentives in the United States. “Most of the time, however, funds of this sort rely on long-term investment, which means there will be no fundamental change,” he said.
However, there are some signs of a strategy shift among some of the region’s largest SWFs. The NMG Consulting report found that Middle-Eastern SWFs had in the past 12 months beefed up their allocations for investments in the alternative asset class—private equity, hedge funds, real estate, infrastructure—by 69 percent.
ADIA, for example, has hired a number of new executives for its private equity, infrastructure, real estate and alternative investments departments in recent years. And on Wednesday, the Kuwait Investment Authority’s managing director, Bader Al-Saad, told Reuters it would now be focusing on increasing its allocations to US, British and European infrastructure and real estate investments.