Reflections from Riyadh: key takeaways from our second investor event in the Middle East region

Garvan McCarthy , Chief Investment Officer, EMEA & Asia

Our second Middle East Investment Conference took place in Riyadh, Saudi Arabia, earlier this month, providing the opportunity to hear direct from asset owners across the region. The vision, ambition and strategic direction driving this group of fast-evolving economies framed every discussion through the course of our event. It was a privilege to hear from investors at the leading edge of growth and innovation in the Middle East; here are my three key takeaways.[SA1] 

A region on the rise

While the football field wouldn’t typically be my go-to source for investment insight, Yaya Touré, our keynote speaker and footballing legend, opened a window into Saudi Arabia’s strategic vision of the future.  After a professional career playing for some of the world’s leading clubs, including  Manchester City and Barcelona, Yaya is now assistant coach for the Saudi Arabian national team. Listening to his story of success and the traits characterizing his international journey reinforced the leadership vision transforming multiple aspects of Saudi Arabia’s international profile – from investments and partnerships across golf and football, to Formula One, boxing and more. Beyond the sporting sphere, global ambitions are already transforming Saudi Arabia’s capital markets and it was fascinating to hear about the dynamism reimagining the region.  

Our event focused on the themes shaping investment decision-making for large asset owners globally, but we also had wide-ranging discussions on investment opportunities within Saudi Arabia and across the Middle East more broadly. We unpacked perceptions of these markets among global allocators and the drive to catalyze international capital into local projects, local assets and local stock markets. Saudi Arabia’s New Investment Law, unveiled earlier this year to facilitate foreign investment, reflects the Kingdom’s strategic ambitions to diversify its economy and support the development of the investment landscape; international investors have an opportunity to be at the forefront of more transformational change across this market once the law comes into effect early next year.

Balancing public and private assets

For all of the excitement about the change taking place in Saudi Arabia, many of the region’s large asset owners are facing the same challenges as peers in the US or Europe. Build a total portfolio view across public and private assets is at the forefront of many investment leaders’ priorities.

Formulating a 360° view across a portfolio may involve overcoming barriers between siloed teams investing in very different types of companies. Across multi-billion-dollar allocations, building a lens that encapsulates and aggregates information, and enables scenario testing and simulations is no mean feat.  

One area in which many asset owners are effectively integrating snapshots of public and private holdings is within credit allocations, where the line between public and private tends to be more blurred. When a company raises financing, they have the ability to source credit from both private and public markets, and it’s not unheard of to see the same corporate entity raise money from both sources.

As a result, we tend to see much more alignment between public and private credit teams, prompting some asset owners to build a more holistic view of their credit allocations, even as private credit continues to expand and mature as an asset class. In some cases, asset owners are building out a private credit capability within their existing fixed income and credit group, while others are establishing[SA2]  a separate private debt team and dedicated private credit portfolio.

Demand for hedge funds is growing

With elevated public market valuations and base rates that, while falling, remain higher than they have been in the recent past, the opportunity set across the hedge fund arena has become more compelling, and large asset owners are taking notice.

Delivering diversification and the potential to compound an attractive cash return plus 4% p.a. [SA3] is prompting some allocators to reassess their strategic weight to hedge funds. We believe that successful hedge fund investing is underpinned by great manager selection, something my colleague Dave McMillan wrote about in a recent edition of Brick by Brick.

Our event in Riyadh may have been our first event in Saudi Arabia, but I doubt it will be our last. I look forward to visiting again as we continue to build our relationships and work with asset owners in the region.

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