Focus of SWFs on regional deals boosts investment in alternative assets in the Middle East


Private investors and sovereign wealth funds (SWFs) in the Middle East are increasingly focusing their attention on national and regional markets, giving a boost to private capital transactions and capital invested in alternative asset classes.

Private fixed assets under management in the region grew 11% per year at the end of 2020, with an even stronger growth of 14% in cash for transactions.

This indicates a “renewed investor appetite,” according to a report by alternative asset industry data and analysis specialist Preqin. He did not give the monetary value of the assets under management.

There is also a growing emphasis on “early stage investing”, with 33 venture capital-focused fund managers establishing their presence in the region between 2018 and 2020, according to the report.

“Globally, sovereign wealth funds represent around 2% of private investor assets under management; in the Middle East, they represent 44%, ”said Preqin.

“While local SWFs have generally invested outside the region, they are increasingly moving capital towards more regionally and nationally focused investments. “

For example, the Saudi Arabia Public Investment Fund plans to more than double the value of its assets under management to $ 1.07 trillion and commit $ 40 billion annually to grow the kingdom’s economy up to ‘in 2025.

Government-linked investment vehicles made up 11% of investor assets under management in the Middle East, compared to 3% globally, according to data from Preqin.

Alternative asset classes that fall outside the scope of public procurement include private equity, private credit, venture capital, hedge funds, commodities, real estate and infrastructure.

The industry has grown rapidly in recent years, with private markets and alternative assets registering compound annual growth in ‘low-teens’, according to Bahrain-based alternative asset manager Investcorp, which plans to double its assets under management to $ 75 billion. in the next five to seven years.

The region’s two main economies, Saudi Arabia and the United Arab Emirates, have led the growth in investment in alternative assets.

The United Arab Emirates, the commercial and financial center of the Middle East, led their regional peers in attracting new fund managers. It is currently home to 46 percent of all investment managers in the region, followed by Saudi Arabia at 24 percent.

The UAE is also home to more investors than anywhere in the region, with 40% based in the country. Kuwait has also fostered a growing base of fund managers, with active growth throughout the 2000s, according to data from Preqin.

Alternative asset managers in the Middle East “are also riding the risk spectrum overall, adopting venture capital strategies and encouraging innovation to drive growth beyond private markets,” according to the report. .

The overall value of venture capital transactions in the Middle East increased significantly in the third quarter of this year and increased by more than 300% from the second quarter of this year, he said without giving a value.

“The software, internet and financial services industries make up the majority of venture capital activity in the Middle East,” Preqin said. “This success helps the region develop its alternative investment industry by attracting capital from international investors, setting a precedent that will shape the future of alternatives in the region.”

As Middle Eastern economies recover from the coronavirus-induced downturn, governments are stepping up efforts to develop the service sectors of their economies and invest more in the renewable energy sector, which has opened up new avenues for development. investment for fund managers, according to the report.

The aggregate value of renewable energy deals in the Middle East between 2011 and 2021 reached $ 13 billion, with more than 60% of those deals executed since 2017.

“It will be the reinvestment in national economies; some states in the Middle East will seize this revenue opportunity by investing through innovative sectors, ”said Alex Murray, vice president of research at Preqin.

Update: November 17, 2021, 4:40 a.m.


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