Vast Gulf wealth funds splinter to make targeted investments

• SWFs use specialised sub-vehicles
• Abu Dhabi pioneers approach
• Most funds follow Saudi model

Sovereign wealth funds in the Gulf are increasingly doing business via wholly-owned or affiliated entities as they become too big to manage specialised investment efforts, industry watchers are saying.

MGX, an Emirati artificial intelligence-focused vehicle founded last year by Abu Dhabi’s fund Mubadala and the artificial intelligence company G42, made a splash by being one of four equity partners in $500 billion of new private investment in US data-centre infrastructure announced by President Donald Trump this week.

G42 also counts Mubadala among its partners, a $300 billion sovereign investor which overtook Saudi Arabia’s Public Investment Fund in spending in 2024.

As part of a deal with Microsoft involving advanced US semiconductors, G42 divested its Chinese holdings this past summer. 

The acquirer of the 42XFund, with stakes in multiple large Chinese tech companies, was Lunate, a year-old independent alternative investment manager in Abu Dhabi that oversees $105 billion in assets and is heavily backed by another of the emirate’s sovereign wealth funds, ADQ.

“Until five years ago, I could sit here and name every single sovereign wealth fund that existed,” says Salar Ghahramani, an associate professor at the Pennsylvania State University, Abington, who studies these entities’ governance. 

“Some people would say there were 40, others would say 60, and we’d get into the definition of what is a sovereign wealth fund to begin with,” he says. 

“What’s happening 100 percent now is that some of the funds have gotten so big, they have such a massive amount of capital, that they want to specialise, and give it to speciality teams.” 

Diego López, founder and managing director of Global SWF, a research company based in New York and Singapore that specialises in sovereign wealth funds, says Abu Dhabi had pioneered the splintering of sovereign wealth funds into different vehicles that have various leaderships, mandates, risk appetites and asset allocations.

The difference is clear between Adia, which invests globally, and ADQ, a “huge umbrella of national champions”, he said during a recent virtual event hosted by the Arab Gulf States Institute in Washington.

Bahrain also follows this approach, with Mumtalakat covering a local economic development role and the Future Generation Reserve tasked with investing savings overseas, López said.

The other GCC states tend to follow Saudi Arabia’s model, where a single overarching parent company typically still manages all of the different mandates. 

PIF owns a plethora of massive Saudi companies, including many investment vehicles catering to specific sectors or regions across the kingdom.

In neighbouring Oman, for instance, the Oman Investment Authority (OIA) rose from the merger in 2020 between the State General Reserve Fund and the Oman Investment Fund.

López said that OIA, with some $50 billion in assets under management, has been instrumental to the sultanate’s recent return to investment grade after a raft of fiscal and financial reforms in the past few years. 

OIA owns the Oman Oil Company (OQ), which invests in energy infrastructure, and has now established a third sub-vehicle, the Future Fund Oman, to support domestic projects and seek out international partnerships with the ultimate goal, according to López, of making “that capital more sustainable".

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“And that’s also what is happening in other countries,” López said at the Arab Gulf States Institute. “If you look at Kuwait, for instance, they announced last year a new development fund called Ciyada, which will theoretically be part of the Kuwait Investment Authority.”

The ultimate details of governance, and relative independence of the sub-vehicles from the motherships, vary on a case-by-case basis, professor Ghahramani says.

“Sometimes the fund itself in its governing documents has the authority to begin a subfund for specialised purposes,” he tells AGBI.

“Some of them are created by the state and are given a mandate to operate under the larger fund with certain limitations.”