Do Middle Eastern Sovereign Wealth Funds Invest in Alternative Assets?

Yes they do!

Between 2021 and 2022, regional SWF’ doubled their exposure to alternative assets.  At the time of writing, 44% of c$4 trillion of SWF assets are invested in alternative funds.

Perhaps the most frequently asked question we get from funds in North America & Europe thinking about a GCC market entry strategy is the extent of potential interest in non-traditional assets and funds. Whilst the figures speak for themselves, it would be folly to imagine that any old hedge fund can de-plane and write tickets the following day. Let’s now dive into the nuances, the reasons why & the hot strategies. 

Whilst SWF seek to boost returns like most other professional allocators, they have a unique ability to pursue non traditional assets – the lack of short to medium term liabilities. Money has been amassed in these funds after the costs of providing social care & the bills to run each country are accounted for. It is extremely rare to see a call on the SWF to satisfy pension scheme or social insurance liabilities. This automatically removes the need to run outsized government issued fixed income allocations (liability matching strategies) 

But, a steady income stream into the Sovereign coffers is still valued highly and can be achieved by allocating to private credit opportunities that often see returns float like market interest rates (at the moment upwards) except that annual running yields are often double digit compared to the US 10 year bond at 3.7%.             

Direct lending is a very real strategy for many SWF given that they continue to invest heavily in talent and systems. However, co-investment or allocating via private credit specialist managers is very much the order of the day. After all, lending to niche markets half way around the world is never straightforward without a local partner. 

Hot on the heels of private credit are allocations to healthcare, digital, urbanisation, distressed real estate & climate change.    

We can conclude by suggesting that with oil & gas prices at current levels (well below their 2022 recent peaks) GCC SWF’s will hit $5trillion very soon. The trend is clear – that 30-50% of this vast sum will be allocated into alternative assets on a long term basis providing superb opportunities for world class fund managers and co-investors to gain traction in our region.