Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

Sovereign Wealth Funds and Liberalized Rules Are Driving the Growth of Middle Eastern Business Hubs

Skadden Publication

Michael Hilton Andrea C. Spadacini Ali Alahmad

Key Points

  • Sovereign-related investors, more commonly referred to as sovereign wealth funds, have increasingly made the Middle East a global center of wealth and investment.
  • Gulf SWFs, no longer just passive investors, are taking an active role in big-ticket, controlling-stake M&A transactions outside the region.
  • Meanwhile, the region has become more and more open to inbound investment, and to revising rules to attract talent and diversify toward a more sustainable, long-term framework for growth.

Driven to a large extent by the region’s enormous sovereign wealth funds (SWFs), the Middle East has become a new global hub of wealth and investment. This is especially the case in the six member states of the Gulf Cooperation Council (GCC) — The United Arab Emirates (UAE), Saudi Arabia, Qatar, Kuwait, Bahrain and Oman — and the region’s six largest SWFs by assets under management (AUM), listed below in alphabetical order:

  • Abu Dhabi Developmental Holding Company (ADQ).
  • Abu Dhabi Investment Authority (ADIA).
  • Kuwait Investment Authority (KIA).
  • Mubadala Investment Company (Abu Dhabi).
  • Public Investment Fund (PIF) (Saudi Arabia).
  • Qatar Investment Authority (QIA).

A Major Economic Hub

A glance at recent trends presents a clear picture. By the third quarter of 2024, M&A aggregate deal value in the Middle East increased by 25.3% compared to the same period in 2023, primarily in the UAE and Saudi Arabia. Moreover, in the first half of 2024, over 54% of funds deployed by SWFs globally were from major Middle East SWFs, the highest level since 2009. This is from a pool of $4 trillion, currently managed by just the six SWFs listed above, three of which are based in Abu Dhabi. As of October 2024, at $1.7 trillion, Abu Dhabi was the world’s richest city in terms of assets managed by SWFs.

The UAE, and Abu Dhabi in particular, is increasingly becoming a focal point internationally, building on an already established position as a regional hub. Factors for its rise in prominence include:

  • A 226% increase in AUM in the last year as more financial firms and asset managers such as hedge funds, private equity firms, institutional funds and venture capital firms open offices in Abu Dhabi (including, most recently, PGIM, General Atlantic, BlackRock and Nuveen).
  • With a streamlined approval process in the Abu Dhabi Global Market (ADGM) — the UAE capital’s financial hub — 1,271 new licenses were issued in the first half of 2024.
  • Regional equity markets have thrived, with the Dubai and Abu Dhabi stock exchanges surging to over $1 trillion in market capitalization by November 2024, surpassing Milan and Madrid. That gain has been driven in large part by the activities of companies linked to the Abu Dhabi conglomerate International Holding Co. as well as big-ticket IPOs such as Lulu Hypermarket’s $1.72 billion listing on the Abu Dhabi stock exchange in November 2024 and regional food delivery business Talabat’s $2 billion listing in Dubai in December 2024.

Saudi Arabia is also expanding its position as a hub for business, with a number of leading international companies choosing to base their regional headquarters there. Its stock exchange continues to perform well, with deal volumes of IPOs, takeovers and capital raisings jumping by 85% through late 2024 and market capitalization reaching nearly $3 trillion, according to the financial services firm ION Analytics.

Trends in Outbound Investments

The substantial capital that SWFs in the GCC possess is forecast to double to $8 trillion by 2030. SWFs regularly feature in big-ticket, cross-border M&A transactions, and they are often sought after as co-investment partners and limited partner investors.

Recent major transactions abroad include:

Mubadala emerged as the largest investor in 2024, investing $29.2 billion across 52 different deals. Alongside Mubadala, four other GCC funds — ADIA, ADQ, PIF and QIA ranked among the top 10 global dealmakers — investing a record $82 billion in 2024. Collectively, this shift away from passive minority investing and the capacity to lead investments and take controlling stakes bodes well for deal activity in 2025, according to ION Analytics’ analysis.

Inbound Investments and Foreign Talent

At the same time that the SWFs are taking a more active role in outbound investments, it has become easier to do business in the region. The GCC countries are increasingly open to foreign direct investment (FDI), relaxing restrictive local partnership requirements and streamlining regulatory processes.

For example, Saudi Arabia’s new investment law consolidates local and foreign firms under a single investment rule book, leveling the playing field.

Significant recent inbound deals include:

The introduction of “golden visas” allowing for long-term residencies should help attract foreign talent. Revised rules of property ownership and inheritance that are more beneficial for foreigners and low taxes are also likely to make the region appealing to skilled foreigners who can help sustain and expand the region’s role in global finance.

Further, with energy transition and diversification a key focus regionally, a more permissive FDI regime led to investments worth approximately $47 billion into the GCC in 2023 alone, with foreign capital investments in Saudi Arabia accounting for 62% of the total value. The Kingdom of Saudi Arabia is also aiming to more than triple FDI, from $29 billion in 2023 to $100 billion a year by 2030.

Such goals have also featured heavily in governments’ ambitious national programs for energy transition, with clean energy investment accounting for 15% of total investment in the sector.

Another source of attracting foreign investment is the GCC funds’ prioritization of investments in cutting-edge industries such as AI and cryptocurrencies, as in part illustrated by Microsoft’s investment in the UAE’s G42.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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