For many years now, oil-based economies have been creating long-term visions as a way of securing their countries’ wealth and prosperity far in the future.
While investments into green technology and infrastructure have played a key role, what often makes the most noise is when GCC countries start looking abroad for investment opportunities.
The most headline-worthy of these are European football clubs. From Manchester City to Paris Saint-Germain, many high-profile teams have been taken over by GCC sovereign wealth funds in the past few decades.
But has the recent attempted acquisition of Standard Chartered by Abu Dhabi Bank signalled a new direction? Are Gulf countries increasingly looking to finance rather than football? And does this mean profit and influence is replacing image and branding as a strategic goal?
Here we look at some of the major moves by GCC sovereign wealth funds, starting with sport and then taking a glimpse into the future by asking: What is behind these massive investments?
Sovereign wealth funds and who has the deepest pockets
Sovereign wealth funds (SWFs) are owned by the state and fuelled by state-affiliated sources. They are used for stabilisation, development, and future planning. The goal is to diversify these investments across sector and country.
While the world’s largest SWF belongs to China, the GCC has an impressively strong showing in the global top ten. The Foundation for Strategic Research notes that ‘of the USD 5.5 trillion held by SWFs today, nearly 40% comes from the Gulf countries.’ The UAE ranks highest in the GCC.
Most significantly, of the sixty or so giant deals made last year, 25 were carried out by Gulf SWFs, with nearly 70% of them targeting companies in the US or Europe, according to FDi Intelligence. They went on to report that the Abu Dhabi Investment Authority (ADIA) spent USD 25.9bn last year, while Saudi Arabia’s Public Investment Fund (PIF) wasn’t far behind with USD 20.3bn.
Other notable names from around the Gulf include the Emirati funds Mubadala and Abu Dhabi Developmental Holding Company PJSC (ADQ), the Qatar Investment Authority (QIA), Mumtalakat in Bahrain, the State General Reserve Fund of Oman, and the Kuwait Investment Authority.
Football and the question of ROI
FDi Intelligence reports that last year, SWFs in the Middle East, ‘more than doubled their investments in Western economies to USD 51.2bn.’ This move has been marked by the acquisition of football clubs, notably in Europe.
The trend started in earnest in 2008 when an ailing English football club was taken over by Sheikh Mansour bin Zayed Al Nahyan’s Abu Dhabi United Group. Once the poor relation to the legendary Manchester United, over the years Manchester City has found its feet and turned around its performance to become one of the most well-known teams in the world. Abu Dhabi United Group also own several other lesser-known football teams in India, Australia and the US.
Three years after the Manchester City take-over, the Emir of Qatar Tamim bin Hamad Al Thani bought Paris Saint-Germain football club through Qatar Sports Investments (QSI). In 2013, fifty percent of Sheffield United went to Prince Abdullah of Saudi Arabia, while in 2021, Saudi Arabia’s Public Investment Fund (PIF) bought an 80% stake in Newcastle United.
This trend doesn’t look like it’s ending any time soon, with some owners looking to sell, others aiming to increase their stake. Two high-profile teams that are also rumoured to be attractive to Gulf SWFs include Manchester United and Tottenham Hotspur.
But why the focus on football?
In short, it’s a global game and by far the most popular sport in the world. And while ROI may be difficult to calculate early on, it’s the branding aspect of owning a football club that really pays dividends. When you own a football team, you essentially become a celebrity, a household name. The team then becomes associated with you and your country. Fans chant your name. You are in the media regularly. This is a stark contrast to many owners of major companies who – to the wider public – remain relatively anonymous.
This focus on image and branding doesn’t mean there isn’t money to be made in football. Disruption Banking notes that Manchester City made a profit of GDP 41.7 million in 2022. But first and foremost, football investment has always been about creating an image for a country and then promoting it around the world. You gain instant visibility to an enormous audience and the chance to shape how a country is perceived.
Sporting investments are not just about foreign teams and football. The recent establishment of the LIV golf tour by Saudi Arabia’s Public Investment Fund (PIF) and Qatar hosting the 2022 football World Cup show that sport can also be a strong investment in public image when brought closer to home.
But we are increasingly hearing more and more rumblings away from the football pitch in the boardrooms of major financial institutions. Is this the beginning of a new trend?
SWFs and Western financial institutions
Along with green energy, Disruption Banking reports that ‘the other two pillars of the Gulf’s “life after oil” strategy are sport and banking.’
It notes that Abu Dhabi Investment Authority (ADIA) holds 4.9% of Citigroup’s share capital, while Mubadala holds 7.5% of the global investment firm Carlyle Group. Meanwhile, Qatar has acquired more than a quarter of the capital of the London Stock Exchange and also has shares in Barclays – another major British bank. Around 25% of the stock of ailing global investment bank Credit Suisse is now owned by several investors, including those from Qatar and Saudi Arabia.
But what about an outright acquisition of a major Western financial institution?
Disruption Banking notes that ‘becoming a limited partner in funds and deals helps generates returns; buying banks wields influence.’ To that end, First Abu Dhabi Bank attempted to acquire Standard Chartered – a British multinational bank. While the deal was blocked because of regulatory issues, this should not necessarily be seen as an end to this kind of ambition. There may be limits for GCC SWFs when it comes to Western financial institutions, but this attempt by First Abu Dhabi Bank is likely not the last by a Gulf fund.
Finance, football and the future
So where do we go from here? The level of confidence and ambition demonstrated by First Abu Dhabi Bank is likely not a one-off. While we may well see more football teams being acquired in the future, the world’s gaze will be fixed firmly on movements within finance. A major takeover of a strategically important Western bank would give an SWF an out-sized level of influence. So why not keep trying?
Football may be partly about image and branding, but perhaps it does sit comfortably in a portfolio along with finance. Like image, the influence gained by owning a Western bank may be hard to measure, but no one is pretending it’s not of great value. And if run well, as Manchester City has demonstrated, the ROI from any kind of international investment can potentially over time include a healthy profit on the balance sheet.