The Gulf’s Rich Sovereign Wealth Welter

With Gulf financial markets standing out in the region and broader universe heading into the last quarter, sovereign wealth fund influence is again an investor preoccupation even as the specific portfolios of the giants in Saudi Arabia, Abu Dhabi, Kuwait and Qatar with an estimated $1.5 trillion in combined assets remain inscrutable despite activity and performance descriptions aligned with global norms. The Saudi reserve pool is managed alongside pension fund and investment company money, with the latter recruiting foreign talent to oversee private equity efforts at home and abroad. The internal focus followed the Arab Spring’s royal pledge of $100 billion in social and infrastructure spending, but education has long been an interest through a $20 billion US-based endowment for the King Abdullah Science University run by a former World Bank executive. Qatar has replicated the model with its own academic city on the outskirts of Doha attracting a handful of American and European campuses. These repositories have stepped into the project finance breach with the withdrawal of Eurozone lenders and post-crisis blows to Arab banks which required official backstops. The Saudi Monetary Authority was in the wings after the 2009 collapse of the Saad and Gosaibi groups, and oil price and consumer recovery since has generated double-digit profit growth for the trio controlling half the system led by NCB. Retail non-interest deposits are the main funding source and the LTD ratio is capped at 85 percent. Capital adequacy and provisions are high and a 2012 mortgage law permitting foreclosure should stimulate that segment. The S&P BICRA assessment is 2 placing the sector among the world’s safest, and the opening of the dedicated financial district in Riyadh is designed to eventually rival Dubai for cross-border status despite the steep rents and few foreign institutions interested.  UAE and Qatari groups have established a bigger Mideast presence, with Emirates NDB just buying Paribas’ Egyptian holding and Commercial Bank of Qatar entering Turkey with a $500 million acquisition. Tie-ups between Bahrain and Kuwait are also common, and Lebanese competitors may soon be targets on spillover effects from Syria’s civil war.

The Maghreb may be an expansion zone as both Tunisia and Morocco get decent marks under IMF programs and position to access sovereign bond markets despite rocky political transitions. The Islamist party left the ruling coalitions in both places amid popular anger over subsidy cuts and street violence. Elsewhere Jordan’s Arab Bank which is the stock market’s biggest listing has a stake in a Libyan counterpart it may increase as recent clashes between the prime minister and security forces ended at an impasse. Kuwaiti banks have links to Iraq alongside Lebanese rivals with branches in Baghdad and Irbil. The latter have a far-flung expatriate network stretching to Africa and Latin America in particular where the risk profile may be within the acceptable cultural and professional lens.