The Middle East has evolved into a two-way portal of global capital flows and the $13.46 trillion asset manager BlackRock is rapidly expanding in the region to grab a larger share of investment deals, its vice chairman has said.
The region is no longer just an exporter of capital, “which is why we're building out capabilities, we're building out investment teams, we're building out offices and people on the ground and it's a perfectly natural evolution”, Philipp Hildebrand told The National in an interview at Abu Dhabi Finance Week.
“Basically, every fund in Europe and America that came [here] to try to get money, the whole concept is now reversing itself, or rather evolving towards a two-way street.”
“How can we invest in the region, as opposed to just getting capital to invest outside”, is the question firms are now asking, Mr Hildebrand said.
The evolution of the Middle East as an investment destination is only “part of the success story”, he added. The other part, on which BlackRock is focused, is the mega trend of capital market's role in transition, which Mr Hildebrand calls “the future of finance”.
The diversification and deepening of capital markets, broadening investor base, and creation of new sources of funding are essential pieces of a future-proof economy, “so this reversal, or this two-way flow of capital, makes perfect sense, and I think it's essential for the region”, Mr Hildebrand said.
Primed for investments
Beyond the capital markets, the region, especially its two largest economies, Saudi Arabia and the UAE, are primed for investments in hard infrastructure as well as technology, artificial intelligence and data centres, Mr Hilderbrand said.
“It's both a traditional infrastructure story … that's really a global theme, and then there's the specific infrastructure to the AI theme, which is mostly around power, ideally renewable, and data centres,” he said.
“I think this is where Abu Dhabi is perfectly positioned. You can see that to be a clear priority, both here, but also in [Saudi Arabia].”
The flow of private credit is critical for the broader region because the scale of investment into AI will require a lot of private capital, he said.
BlackRock is among a rapidly expanding group of asset managers, insurers, financial institutions and investment houses that have either set up base in the region or are looking to consolidate their presence in the Gulf.
In recent years, Abu Dhabi's financial centre in particular has attracted investors, trillion-dollar asset managers, global hedge funds and wealth advisers.
A presence in the UAE provides global financial heavyweights with an opportunity to expand in the broader Middle East and work closely with some of the world's biggest sovereign wealth funds, as well as large family offices and institutional investors. The UAE capital is home to the Abu Dhabi Investment Authority, Mubadala Investment Company and investment holding company ADQ.
Last year, the ADGM welcomed its first trillion-dollar asset manager when PGIM, the global asset management business of Prudential Financial, was granted a licence. Chicago investment firm Nuveen soon followed, with both companies aiming to expand their operations and client bases in the Middle East.
New York-based BlackRock received a commercial licence to operate from the ADGM in November last year.
Deal-making spree
The world’s top asset manager, with $128 billion in client assets in the Middle East, has been on a deal spree in the region over the past few years, partnering with some of biggest corporate and institutional investors.
In October, a consortium made up of the Artificial Intelligence Infrastructure Partnership (AIP), MGX and BlackRock’s Global Infrastructure Partners (GIP) agreed to acquire 100 per cent equity in Aligned Data Centres (ADC).
The transaction gave ADC, one of the world’s fastest-growing digital infrastructure developers, an enterprise value of about $40 billion, making it one of the largest private infrastructure deals in the global digital and AI space, Abu Dhabi AI investment firm MGX said at the time.
In August, Saudi Aramco, the world’s biggest oil exporter, signed an $11 billion lease and leaseback agreement for midstream gas-processing plants at its Jafurah field with a consortium led by BlackRock's GlP.
Earlier this year, IHC, the UAE's most valuable listed firm, partnered with BlackRock to launch reinsurance company RIQ, with more than $1 billion in initial equity commitments. It aims to accumulate a portfolio of $10 billion in liabilities, IHC said in a filing at the time.
In 2024, Saudi Real Estate Refinance Company (SRC), a mortgage financier backed by the kingdom’s Public Investment Fund, signed an initial agreement with BlackRock to develop the country’s property finance market.
Mr Hildebrand said BlackRock sees growth across the Gulf and it is expanding “very quickly” through the five offices it operates in the region.
“I've been coming to the region now very regularly since 2012 when I first joined BlackRock, and the change here has just been amazing and that reflects in what we're doing, in terms of people, the AUMs the [regional] offices and it's all happening very, very rapidly,” he said.
The transformational change in the region in terms of demographics, technology, innovation and energy matches global mega trends.
“Think of all the reasons and then you sense that what we're doing strategically as a firm here is because this region is in the right place,” Mr Hildebrand said.
Even in terms of geographical fragmentation, which is turning out to be challenging for many parts of the world, the Middle East is ideally placed to manage the new globalisation.
“The adjustment costs are much lower [here] than in other regions,” he said.
Magnet of capital
The region, especially the UAE, has also emerged as a magnet for global capital, which Mr Hildebrand said is largely due to “very clear opportunities” for investors looking to diversify their global portfolios.
The phenomenal rise of the US markets and exceptional run for dollar assets since the 2008 crisis has led to the US accounting for about 60 per cent to 70 per cent of the global capital market.
Mr Hildebrand said the world is at a stage of “normalisation of an exceptional period since the financial crisis”.
“The notion that in a more fragmented world, a global portfolio ought to be more diversified seems like a fairly natural hypothesis,” he said.
The trend of the capital flows to the region is there for the long term, he added.
“It's capital and by definition it is always opportunistic. One thing I've learnt is it can move quickly, which is why politicians tend to struggle with it, because you have to stay consistent in terms of your strategy and execute well to make sure that it is not just a one-off story,” Mr Hildebrand said.
The credibility of governments on execution of policies is very high here in the region, unlike elsewhere, such as Europe, he added.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Need to know
The flights: Flydubai flies from Dubai to Kilimanjaro airport via Dar es Salaam from Dh1,619 return including taxes. The trip takes 8 hours.
The trek: Make sure that whatever tour company you select to climb Kilimanjaro, that it is a reputable one. The way to climb successfully would be with experienced guides and porters, from a company committed to quality, safety and an ethical approach to the mountain and its staff. Sonia Nazareth booked a VIP package through Safari Africa. The tour works out to $4,775 (Dh17,538) per person, based on a 4-person booking scheme, for 9 nights on the mountain (including one night before and after the trek at Arusha). The price includes all meals, a head guide, an assistant guide for every 2 trekkers, porters to carry the luggage, a cook and kitchen staff, a dining and mess tent, a sleeping tent set up for 2 persons, a chemical toilet and park entrance fees. The tiny ration of heated water provided for our bath in our makeshift private bathroom stall was the greatest luxury. A standard package, also based on a 4-person booking, works out to $3,050 (Dh11,202) per person.
When to go: You can climb Kili at any time of year, but the best months to ascend are January-February and September-October. Also good are July and August, if you’re tolerant of the colder weather that winter brings.
Do not underestimate the importance of kit. Even if you’re travelling at a relatively pleasant time, be geared up for the cold and the rain.
