DUBAI — Governments in the Middle East are investing less internationally than they have at any time in the past three years, as pressure to focus on domestic needs has shifted their attention away from global trophy acquisitions, analysts say.
With the exception of Qatar, Gulf states are putting less money into their sovereign wealth funds used to save for the future and to make high-profile investments.
Instead they are spending more locally on higher salaries, infrastructure projects, education and health care, in the aftermath of the Arab Spring.
“It is no longer a given that large sovereign governments are going to direct their oil revenue surpluses around the globe, pumping cash into other economies,” said Nick Tolchard, head of Invesco Middle East in Dubai.
“Sovereign wealth fund assets are being redirected from international investments back into the Mideast.”
Gulf sovereign wealth funds were known for snapping up major assets in Europe and North America over the past few years, like the Abu Dhabi Investment Authority’s $7.5 billion purchase of a 4.9 percent stake in Citigroup in 2007 and Qatar’s £1.5 billion, or $2.3 billion, acquisition of the Harrods department store in London in 2010.
Governments across the region are now redirecting money into higher wages and improved services. Health care and education, for example, have become major priorities for Saudi Arabia and Oman. Even Qatar, which remains acquisitive, is pouring funds into new infrastructure, in part to prepare for hosting the World Cup soccer tournament in 2022.
Even when they do invest in securities, the Gulf funds are looking closer to home. For example, in mid-May, Paladin Capital, based in Washington, D.C. joined with Invest AD, a subsidiary of the Abu Dhabi Investment Council — a sovereign wealth fund owned by the government of Abu Dhabi — to establish a $100 million regional fund.I
Sovereign wealth funds “are still watching Europe, of course, determining when is an opportune time to buy assets when prices are falling,” said Tamer Rashad, managing director and head of Middle East operations for Merrill Lynch Wealth Management, based in Dubai.
“Today, there is a greater inward look at the region, a tendency to rethink portfolio allocation.” Last year, a survey conducted by Invesco that included in-depth interviews and research with 10 sovereign wealth funds in the Middle East, reported that 29 percent of Gulf sovereign investments went to North America and 19 percent to Western Europe.
This year, investment in North America has fallen to 14 percent and in continental Europe to 4 percent. The decline has largely been a response to the euro zone crisis, according to Mr. Tolchard. While the shift to investing in the region is an understandable reaction to domestic politics and Europe’s problems, it could be a mistake over the long term, some analysts warn.
“It doesn’t serve another one of the core mandates of diversifying away from volatile, hydrocarbon driven economies,” said Khalid Howladar, senior analyst at Moody’s in Dubai. Qatar stands out from the pack, with its sovereign wealth fund buying stakes in major international firms over the past few months.
These include a $3 billion stake in German industrial company Siemens, a stake of undisclosed size in Royal Dutch Shell and a 3 percent holding in Total, the French oil company.
Analysts say, however, that the majority of Qatar’s international investments complement the emirate’s domestic agenda — with stakes in Siemens and Hochtief, the largest German builder, intended in part to draw such companies into Qatar’s own building program.
Despite the shift in focus, the Middle East remains a leading region for investment through sovereign wealth fund vehicles, trailing only Asia, according to the Sovereign Wealth Fund Institute, a research organization in Las Vegas.
But these funds have become a much more skeptical audience for visiting bankers and other go-betweens than they were in the past.
“Western governments, including Britain, have approached sovereign wealth funds from the Mideast to help with economic recovery, but many will fight a losing battle,” said Mr. Tolchard of Invesco.
“Those courting Gulf money from outside the region will only win with a deep understanding of what is driving their thinking.”
nytimes.com
With the exception of Qatar, Gulf states are putting less money into their sovereign wealth funds used to save for the future and to make high-profile investments.
Instead they are spending more locally on higher salaries, infrastructure projects, education and health care, in the aftermath of the Arab Spring.
“It is no longer a given that large sovereign governments are going to direct their oil revenue surpluses around the globe, pumping cash into other economies,” said Nick Tolchard, head of Invesco Middle East in Dubai.
“Sovereign wealth fund assets are being redirected from international investments back into the Mideast.”
Gulf sovereign wealth funds were known for snapping up major assets in Europe and North America over the past few years, like the Abu Dhabi Investment Authority’s $7.5 billion purchase of a 4.9 percent stake in Citigroup in 2007 and Qatar’s £1.5 billion, or $2.3 billion, acquisition of the Harrods department store in London in 2010.
Governments across the region are now redirecting money into higher wages and improved services. Health care and education, for example, have become major priorities for Saudi Arabia and Oman. Even Qatar, which remains acquisitive, is pouring funds into new infrastructure, in part to prepare for hosting the World Cup soccer tournament in 2022.
Even when they do invest in securities, the Gulf funds are looking closer to home. For example, in mid-May, Paladin Capital, based in Washington, D.C. joined with Invest AD, a subsidiary of the Abu Dhabi Investment Council — a sovereign wealth fund owned by the government of Abu Dhabi — to establish a $100 million regional fund.I
Sovereign wealth funds “are still watching Europe, of course, determining when is an opportune time to buy assets when prices are falling,” said Tamer Rashad, managing director and head of Middle East operations for Merrill Lynch Wealth Management, based in Dubai.
“Today, there is a greater inward look at the region, a tendency to rethink portfolio allocation.” Last year, a survey conducted by Invesco that included in-depth interviews and research with 10 sovereign wealth funds in the Middle East, reported that 29 percent of Gulf sovereign investments went to North America and 19 percent to Western Europe.
This year, investment in North America has fallen to 14 percent and in continental Europe to 4 percent. The decline has largely been a response to the euro zone crisis, according to Mr. Tolchard. While the shift to investing in the region is an understandable reaction to domestic politics and Europe’s problems, it could be a mistake over the long term, some analysts warn.
“It doesn’t serve another one of the core mandates of diversifying away from volatile, hydrocarbon driven economies,” said Khalid Howladar, senior analyst at Moody’s in Dubai. Qatar stands out from the pack, with its sovereign wealth fund buying stakes in major international firms over the past few months.
These include a $3 billion stake in German industrial company Siemens, a stake of undisclosed size in Royal Dutch Shell and a 3 percent holding in Total, the French oil company.
Analysts say, however, that the majority of Qatar’s international investments complement the emirate’s domestic agenda — with stakes in Siemens and Hochtief, the largest German builder, intended in part to draw such companies into Qatar’s own building program.
Despite the shift in focus, the Middle East remains a leading region for investment through sovereign wealth fund vehicles, trailing only Asia, according to the Sovereign Wealth Fund Institute, a research organization in Las Vegas.
But these funds have become a much more skeptical audience for visiting bankers and other go-betweens than they were in the past.
“Western governments, including Britain, have approached sovereign wealth funds from the Mideast to help with economic recovery, but many will fight a losing battle,” said Mr. Tolchard of Invesco.
“Those courting Gulf money from outside the region will only win with a deep understanding of what is driving their thinking.”
nytimes.com
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