Middle East SWFs will get further boost with Brent forecast to average $94 over 4 years

The firepower of the Middle Eastern sovereign wealth funds (SWF) will get a further boost as Brent crude is forecast to average $94 per barrel over the next four years, Japan's biggest bank, MUFG, said in its Middle East 2023 outlook report.

Accordingly, the net financial wealth will reach $5.6 trillion, or 247% of GDP, by 2026, a cumulative increase of $1.8 trillion from the present $3.8 trillion.

“Such an unprecedented quantum of surpluses will fortify the region’s balance sheets, support regional risk assets in the medium term and further strengthen its position as a critical creditor region in the global economy,” the report added.

Saudi Arabia has already unveiled a strategy to grow the Public Investment fund, its SWF, from $607 billion to $1.8 trillion by 2030.

Moreover, Middle East funds have shattered stereotypes of following covert strategies and only hunting trophy assets being now increasingly recognized as smart, flexible and mature investors that can move the needle locally and overseas.

“The expected decade-long energy supercycle and the bullet-proof dollar peg that serves as a credit anchor of stability positions Middle Eastern SWFs well over the long term,” MUFG said.

Middle East SWFs have doubled their investments from $22 billion in 2021 to $52 billion in 2022. In addition, five of the 10 most active SWFs are from the Middle East.

Of last year’s 60 mega deals (ticket size of +$1 billion), 26 were carried out by Middle Eastern SWF.

The largest deal was done by Abu Dhabi Investment Authority (ADIA), which invested $4 billion in Ardian’s ASF IX and $2 billion for joint co-investments, the report stated.

In a recent report, Bain & Company said Middle Eastern sovereign wealth funds are using merger and acquisitions (M&A) to scale into new verticals and build local champions.

The report cited Saudi Arabia’s Public Investment Fund (PIF) investing $1.3 billion in four Egyptian companies in August 2022, including Abu Qir Fertilizers and Alexandria Container and Cargo Handling.

(Editing by Seban Scaria seban.scaria@lseg.com)