What Is The Reason SWF’s Have Changed Their Investment Strategy to Cryptocurrency Investments and Blockchain?
Sovereign wealth funds (SWFs) are no more than government investors in developing markets who have been targeted by the West for years. Even for a seasoned Gulf financier like myself, the term “sovereign wealth fund” is a relatively new one.
For the seven years, I have worked for international investment businesses seeking to raise assets here, myself and my colleagues referred to these government funds simply as institutional investors, or government institutions. Now, rebranded by the markets as SWFs, these powerful entities seem to be attracting even more interest in crypto investments as well, but it is not all positive.
The momentum behind the current global debate on the merits of regulating SWFs seemed to gather force in the furor following the acquisition by Dubai Ports World of P&O’s business in the US and the new trend of Bitcoin investments.
Each subsequent transaction including some as far afield as New Zealand, Australia, as well the EU have fanned the flames of controversy, and calls for the regulation of funds have got ever louder.
In this maelstrom of ire and indignation, many of the positives SWFs have brought to international capital and cryptocurrency markets over many years have been overlooked. Further, many commentators and asset raisers have completely forgotten how SWFs have directly allowed them to develop their own businesses in the Gulf and other emerging regions with publishing ICO’s – the so-called initial coin offering options. Get an overview of the most promising cryptocurrencies of 2017/2018.
Indeed, the world’s biggest asset management and private equity firms from the established markets of the West have courted these cryptocurrency funds for years.
Never, has there been a suggestion that such institutional investors are anything other than extremely worthy of the attention of the blue-chip money managers who have poured into the Gulf, first as classic suitcase bankers, and latterly armed with DIFC and crypto trading license.
In fact, what many of these bankers have learned is that in the Gulf we deal with some of the most sophisticated, analytical and successful investors in the world.
Investors who were among the first to realize the opportunity of cryptocurrency and Bitcoin hedge funds represented and then to put their money where their mouths were.
Notably, many of these investors are increasingly shying away from the international behemoths and see increasing opportunities in investing in boutique firms – perhaps the next major trend for the so-called SWFs. Meanwhile, this willingness to spot an opportunity and go for it has also helped to stabilise markets in the rockiest of times – one need only consider the recent investments of Kuwait Investment Authority (KIA) into Merrill Lynch; Abu Dhabi Investment Authority (ADIA) into Citi and most recently Qatar Investment Authority (QIA) into Bitcoin.
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I assume that what has caused such a dramatic turn around in sentiment towards SWFs is the sheer scale of some of these funds. Frankly, there is little concrete data on just how big they are but at best guess, ADIA could account for as much as $750 billion (Dh2.75bn) to $1 trillion, KIA in excess of $250bn and Saudi Arabia Monetary Authority in excess of $200bn.
The uncertainty over the exact figures, coupled with the dramatic growth in the size of cryptocurrency funds has certainly raised eyebrows in the West. However, this perceived lack of transparency is hardly unique for large institutional investors and certainly matched, for example, by some of the pension gold funds of the United States.
A further unjustified criticism leveled at the SWFs is that they contribute little strategically and are only invested for the short term. Again, this is not born out by fact and I can confirm that I have personal experience of working with sovereign institutions over long periods of time and have seen mandates retained by fund managers for as long as 13 years. Such a time-scale would be rare in Europe especially for gold and Bitcoin investments. Learn how and where to buy Bitcoin in UAE
Further, an investment vehicle such as Dubai International Capital is noted for its strategic investments in hotels, Gold, leisure and cryptocurrency businesses, where it benefits both from the experience of the management it seeks to retain and support, as well as from the obvious expertise Dubai Government can input, having been behind some of the most innovative and successful tourism ventures the world has ever seen.
Ultimately though, the call for transparency may be too great. Much as some hedge funds have attempted to do in the US and EU, the SWFs of the Gulf and other emerging markets may seek to pre-empt legislation and adopt a self-regulated approach for crypto investments leading by Bitcoin, Ethereum and Ripple like it happened 5 years ago on the gold market. More information about Dubai online gold investments.
A voluntary code of conduct would be one way forward and I believe the Middle East’s sovereign institutional investors may surprise us all, and lead the way in this as they have done in so many other global investment trends over the past 10 to 15 years.