Page 23 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

8 Introduction

Part I: Background and Context

The first chapter of this book discusses the origins and sources of Gulf
prosperity, as well as the outlook for the region’s wealth in an uncer-
tain future. Though they are known today for their sleek buildings
and visible wealth, the countries of the GCC have modest origins as
merchant societies and cross-regional traders. The principal source of
Gulf wealth, the area’s oil and gas resources, has experienced remark-
able volatility over the decades, marked by tremendous booms in the
1970s and 2000s with steep corrections in between. Healthy surpluses,
especially in recent years, have enabled the region to amass trillions
of dollars in invested wealth. The current financial crisis and global
recession have certainly affected the value of Gulf investments,
reducing portfolio values significantly. A more fundamental effect,
however, has been the steep decline in oil prices from their 2008
peaks. Still, even with this decline, key Gulf states—particularly the
UAE, Qatar, and Kuwait—may continue to enjoy significant sur-
pluses and to generate income from their substantial reserves. In fact,
the environment of cheaper asset values worldwide may encourage
Gulf investors to expand their portfolios in the current period.
As Gulf wealth is inextricably linked to energy markets, any
forecast of GCC investments must consider various scenarios for oil
and gas prices in the years ahead. We therefore discuss potential
upward and downward pressures on oil prices, as well as systemic
shifts (such as the momentum of renewable-energy initiatives) that
have the potential to fundamentally shape oil and gas markets going
forward.
Having reviewed the drivers, scale, and outlook for Gulf capital,
we turn our attention to the landscape of Gulf-based investors. The
GCC investor base is not a monolith, and Chapter 2 classifies and
describes the various types of Gulf-based investors. The best known
among them are the “generalist” sovereign wealth funds (SWFs) such
as the Abu Dhabi Investment Authority (ADIA) and the Qatar
Investment Authority (QIA). These funds, some of which were estab-
lished decades ago, exist principally to preserve and grow the wealth
of Gulf nations through prudent international investment. We will
discuss the stated objectives and activities of these SWFs, and also
explore how the term fund is often a misnomer for Gulf SWFs, which
might better be understood as “trusts.”
A second category of Gulf investors that we shall explore is “spe-
cialist” government-funded investment vehicles such as Mubadala