Page 84 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

68 PART I Background and Context

used to channel the private wealth of the Gulf. The defining character-
istics of institutions in this category are that (1) they are funded by pri-
vate wealth (not government capital), and (2) their core objectives are to
preserve and grow the wealth of their founders.

Legacy and Stewardship
Private institutional investors in the GCC generally trace their roots to
wealth created during the region’s rapid expansion since the 1970s.
While the boom times brought wealth to the state overall through oil
revenues, significant wealth also flowed into the private sector through
the funding of projects, infrastructure, government-backed companies,
and the like. Sizable private fortunes were built by contractors who (lit-
erally) helped build the GCC, project management firms that under-
took massive initiatives, financial services enterprises that channeled
wealth through the economy, and captains of business throughout the
broader economy. The phenomenon of private fortunes blossoming as
states experience rapid economic growth is a common theme world-
wide, especially in emerging markets; it is visible, for example, in the
large business families of postwar Germany and Japan, in the renowned
business families of South Korea, and in the business networks of South
Asia.
Much of the investment activity undertaken by private institu-
tions is driven by a sense of legacy and stewardship. Private wealth
that was originally held by entrepreneurs and founders of large enter-
prises has been channeled into institutions in order to preserve the
existing assets and grow them for future generations. In this respect,
much of the ethos of private institutions is similar to that of sovereign
wealth funds. Private institutions differ, of course, from SWFs with
respect to the sources and scale of wealth, as well as their investment
approaches and management styles.
The precise scale of private wealth in the GCC is unknown, as
private wealth is generally not disclosed. Estimates of its size vary
widely; the IMF’s estimate was over $1.5 trillion in 2008, 31 whereas
McKinsey’s assessment has been closer to $800 billion. 32 Whereas
these estimates seek to capture both wealth held by private institu-
tions and wealth held directly by individuals, our focus in this chap-
ter is on institutional wealth rather than retail investors.
It is believed that about half the private wealth of the GCC is
concentrated in Saudi Arabia. 33 This should not be surprising, since,
after all, the Saudi market represents about half of the GCC’s total