The Middle East Becomes the World’s ATM
Flush with cash from an energy boom, Saudi Arabia and other Gulf monarchies have a moment on the world’s financial stage
Flush with cash from an energy boom, Saudi Arabia and other Gulf monarchies have a moment on the world’s financial stage
Five years ago, Saudi officials watched a wave of American finance executives pull out of a free investment confab in Riyadh after the murder of a dissident journalist made the kingdom a toxic place to do business.
This year, the conference, nicknamed “Davos in the Desert,” is expecting so much demand it is charging executives $15,000 a person.
Middle East monarchies eager for global influence are having a moment on the world’s financial stage. They are flush with cash from an energy boom at the very time traditional Western financiers—hampered by rising interest rates—have retreated from deal making and private investing.
The region’s sovereign-wealth funds have become the en vogue ATM for private equity, venture capital and real-estate funds struggling to raise money elsewhere.
The market for marquee mergers and acquisitions has seen a surge of interest from the region. Recently announced deals include an Abu Dhabi fund’s purchase of investment manager Fortress for more than $2 billion and a Saudi fund’s $700 million purchase of global lender Standard Chartered’s aviation unit.
Companies and funds overseen by Abu Dhabi’s national security adviser, Sheikh Tahnoun bin Zayed Al Nahyan, have made runs at buying Standard Chartered and investment bank Lazard. They have also struck recent deals to buy a $1.2 billion U.K. healthcare company and to take partial control of a nearly $6 billion Colombian food giant.
“Now, everybody wants to go to the Middle East—it’s like the gold rush in the U.S. once upon a time,” said Peter Jädersten, founder of fundraising advisory firm Jade Advisors. “It’s difficult to raise money everywhere.”
Fund managers visiting the region say they often wait across from rivals in waiting rooms of sovereign-wealth funds. Silicon Valley and New York managers are a near-constant presence in the white-marble floored lobby of the Four Seasons Abu Dhabi, as with other top hotels, they say.
The Riyadh conference next month—a pet project of Saudi Crown Prince Mohammed bin Salman known as the Future Investment Initiative—is expected to be a magnet for money hunters. In 2018, Wall Street executives backed out after Saudi operatives murdered journalist Jamal Khashoggi, and for years many startups and funds said they avoided investment from the country over moral concerns.
Some companies continue to steer clear of the kingdom, while human-rights groups say its record on treatment of government dissidents remains a serious problem.
But Saudi funding became more in demand last year when other money began to get tight. At last year’s conference the Public Investment Fund’s chief, Yasir Al Rumayyan, sat on a panel discussion with two of the world’s biggest investment-firm executives, Blackstone’s Stephen Schwarzman and Ray Dalio, founder of Bridgewater Associates. Top names in venture capital mixed on the floor, and FTX chief Sam Bankman Fried looked for funding.
Ben Horowitz, partner at Andreessen Horowitz, said at a PIF-sponsored conference this spring that Saudi Arabia was a “startup country,” and referred to Prince Mohammed as its “founder” who was creating a new culture and new vision for the country.
The region’s new dominance is most apparent among private funds, the type that lock up investors’ money for years. While detailed statistics are scarce, figures at two of the biggest sovereign funds suggest a surge. At Saudi’s PIF, commitments for “investment securities”—a category that includes private funds—rose to $56 billion in 2022, up from $33 billion a year earlier. Abu Dhabi’s Mubadala reported that equity commitments doubled to $18 billion in 2022.
Executives at private-equity giants TPG, KKR and Carlyle Group have told investors that interest from the Middle East remains strong while other parts of the world recede.
“If you’re in the U.S., there’s a certain degree of concern,” Carlyle CEO Harvey Schwartz said at a June conference. Middle East investors, he said, are “very front-footed, very dynamic.”
While the Middle East steps on the gas, the traditional backers of investment funds—pension plans and college endowments—are in retreat. The global shift to higher interest rates caused losses in the biggest parts of their portfolios—especially stocks and bonds.
Investors put $33 billion toward U.S.-based venture capital funds in the first half of 2023, less than half the $74 billion in the same period in 2021, according to PitchBook. Global fundraising for all private funds fell 10% last year to $1.5 trillion, according to Preqin—a decline many expect to continue.
“Fundraising has become much, much harder over the past 12 months,” said Brenda Rainey, an executive vice president at Bain & Co. who advises private-equity funds.
The reason for the region’s burst of funding and deal making is twofold.
Higher energy prices—a byproduct of Russia’s invasion of Ukraine—have given the region’s oil- and gas-dependent wealth funds tens of billions of dollars of extra money to spend. That means a drop in oil prices could quickly cause a pullback from the Gulf countries, as has happened in energy booms-turned-bust of the past.
At the same time, Saudi Prince Mohammed and top officials in the U.A.E. have jostled for greater sway on the world stage—in geopolitics, finance and sports—pumping additional money into their wealth funds to do deals and expand industry at home.
The intersection of politics and finance in the region has led Gulf wealth funds from Saudi Arabia, the U.A.E. and Qatar to be the main financial backers of two key Trump administration figures: Jared Kushner and former Treasury Secretary Steven Mnuchin, who together raised billions of dollars from the region.
Gulf funds have pushed their U.S. peers to open offices in the region to more easily win investments, fund managers say.
BlackRock has said it would create a team on the ground in Riyadh dedicated to boosting investment into infrastructure projects in the Gulf.
Millennium Management LLC, based in New York, set up an office in Dubai in 2020 and others followed, including private-equity firm CVC Capital Partners and ExodusPoint Capital Management, the largest-ever hedge-fund startup with $8 billion in initial capital. Europe’s Tikehau Capital and Ardian both established teams in Abu Dhabi, and U.S. alternative investment manager, Pretium, hired a local industry veteran from Dubai.
Dalio also set up an office in Abu Dhabi for the Dalio Family Office, his personal venture. Rajeev Misra, a longtime financier for SoftBank Group who secured over $6 billion in commitments for a new venture from multiple Abu Dhabi-aligned investment funds, is moving to the U.A.E. from the U.K., according to people familiar with his plans.
There is now an “awareness that relationships have to be built and that doesn’t happen overnight,” said Joseph Morris, a Dubai-based managing director at U.S.-based advisory firm Newmark Group.
The venture capital arm of Tiger Global has struggled to raise its latest fund, repeatedly cutting its target by billions of dollars. Stung by losses and the cooler fundraising environment, many U.S. investors have given it the cold shoulder, investors say.
One place it found success: Saudi Arabia. A division of PIF, Sanabil, this spring added Tiger’s name to the public list of fund managers it backs. Others on the list include Peter Thiel’s Founders Fund and Andreessen Horowitz.
Ibrahim Ajami, who oversees startup investments at Abu Dhabi state fund Mubadala, which invests in companies as well as funds, said the environment gives Mubadala the ability to be “very thoughtful and selective” about who it backs.
He can negotiate terms that let Mubadala buy a stake in the fund manager itself, he said, or allow it to invest alongside others.
“What we are doing is going deeper—and more concentrated and more engaged—with a select group of managers,” he said.
—Summer Said and Berber Jin contributed to this article.
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When will Berkshire Hathaway stop selling Bank of America stock?
Berkshire began liquidating its big stake in the banking company in mid-July—and has already unloaded about 15% of its interest. The selling has been fairly aggressive and has totaled about $6 billion. (Berkshire still holds 883 million shares, an 11.3% interest worth $35 billion based on its most recent filing on Aug. 30.)
The selling has prompted speculation about when CEO Warren Buffett, who oversees Berkshire’s $300 billion equity portfolio, will stop. The sales have depressed Bank of America stock, which has underperformed peers since Berkshire began its sell program. The stock closed down 0.9% Thursday at $40.14.
It’s possible that Berkshire will stop selling when the stake drops to 700 million shares. Taxes and history would be the reasons why.
Berkshire accumulated its Bank of America stake in two stages—and at vastly different prices. Berkshire’s initial stake came in 2017 , when it swapped $5 billion of Bank of America preferred stock for 700 million shares of common stock via warrants it received as part of the original preferred investment in 2011.
Berkshire got a sweet deal in that 2011 transaction. At the time, Bank of America was looking for a Buffett imprimatur—and the bank’s stock price was weak and under $10 a share.
Berkshire paid about $7 a share for that initial stake of 700 million common shares. The rest of the Berkshire stake, more than 300 million shares, was mostly purchased in 2018 at around $30 a share.
With Bank of America stock currently trading around $40, Berkshire faces a high tax burden from selling shares from the original stake of 700 million shares, given the low cost basis, and a much lighter tax hit from unloading the rest. Berkshire is subject to corporate taxes—an estimated 25% including local taxes—on gains on any sales of stock. The tax bite is stark.
Berkshire might own $2 to $3 a share in taxes on sales of high-cost stock and $8 a share on low-cost stock purchased for $7 a share.
New York tax expert Robert Willens says corporations, like individuals, can specify the particular lots when they sell stock with multiple cost levels.
“If stock is held in the custody of a broker, an adequate identification is made if the taxpayer specifies to the broker having custody of the stock the particular stock to be sold and, within a reasonable time thereafter, confirmation of such specification is set forth in a written document from the broker,” Willens told Barron’s in an email.
He assumes that Berkshire will identify the high-cost Bank of America stock for the recent sales to minimize its tax liability.
If sellers don’t specify, they generally are subject to “first in, first out,” or FIFO, accounting, meaning that the stock bought first would be subject to any tax on gains.
Buffett tends to be tax-averse—and that may prompt him to keep the original stake of 700 million shares. He could also mull any loyalty he may feel toward Bank of America CEO Brian Moynihan , whom Buffett has praised in the past.
Another reason for Berkshire to hold Bank of America is that it’s the company’s only big equity holding among traditional banks after selling shares of U.S. Bancorp , Bank of New York Mellon , JPMorgan Chase , and Wells Fargo in recent years.
Buffett, however, often eliminates stock holdings after he begins selling them down, as he did with the other bank stocks. Berkshire does retain a smaller stake of about $3 billion in Citigroup.
There could be a new filing on sales of Bank of America stock by Berkshire on Thursday evening. It has been three business days since the last one.
Berkshire must file within two business days of any sales of Bank of America stock since it owns more than 10%. The conglomerate will need to get its stake under about 777 million shares, about 100 million below the current level, before it can avoid the two-day filing rule.
It should be said that taxes haven’t deterred Buffett from selling over half of Berkshire’s stake in Apple this year—an estimated $85 billion or more of stock. Barron’s has estimated that Berkshire may owe $15 billion on the bulk of the sales that occurred in the second quarter.
Berkshire now holds 400 million shares of Apple and Barron’s has argued that Buffett may be finished reducing the Apple stake at that round number, which is the same number of shares that Berkshire has held in Coca-Cola for more than two decades.
Buffett may like round numbers—and 700 million could be just the right figure for Bank of America.
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