Middle East sovereign wealth funds (SWFs) could be worth as much as $7.5 trillion by 2015 and their increasing investment presents a unique opportunity for local economies, spurring job creation and innovation, A.T. Kearney said in a report on Monday.
The management consultancy said assets under management of these funds globally rose 18% last year to $3.3 trillion, with Middle East SWFs accounting for 50% of this.
The firm said it expected assets under management by wealth funds globally to reach $5 trillion in 2010 and $10-$15 trillion in 2015, with growth supported by rising oil revenues and increasing foreign exchange reserves of some Asian countries.
The rapidly growing wealth of Middle East SWFs, which are investing the windfall gained from soaring oil prices as governments look to diversify their economies away from hydrocarbons, was a major contributor to the huge amount of capital available in the region for investment, A.T. Kearney said.
It estimated there is approximately $4 trillion available in both public and private sectors and said SWFs were coming under increasing pressure to invest.
A.T. Kearney said wealth funds were increasingly turning to equity-type investments to benefit from higher revenues and to gain exposure to strategic companies with more capabilities and know-how in industries that are crucial to their own economies.
SWFs have made substantial investments in US and European banks, including Citigroup and Merrill Lynch & Company in the last 12 months in the wake of the subprime mortgage crisis and ensuing credit crunch.
A.T. Kearney said the rising power of wealth funds and their private equity oriented investments were also an opportunity for the Middle East economy itself.
“More than one million jobs have been created through private equity investments in Europe in the last four years” Dirk Buchta, A.T. Kearney Middle East managing director, said in a statement.
A.T. Kearney said the report showed companies financed by private equity and SWFs grow faster than those traditionally financed.
Private equity firms often invest in mid-size companies – mostly former family owned businesses – of which the Middle East has many, the firm said.
With the help of Private Equity investors, these companies usually invest more heavily in research and development (R&D) and become more international, it added.
“With $4 trillion available in the Middle East for investment and very healthy sovereign wealth funds, the outlook for economic development in the region is very positive” Alexander von Pock, A.T. Kearney Middle East financial services manager.
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