(Bloomberg) — Late last month, Blackstone Inc. announced the first inbound Gulf private equity deal since Iran started attacking Middle Eastern hubs, while Citigroup Inc.’s top boss fired off a 600-word memo underlining the bank’s enthusiasm for its business in the region.
Blackstone’s $250 million commitment, hailed as a “masterstroke” by an executive at a rival firm, and Jane Fraser’s note came just as the United Arab Emirates’ carefully-cultivated image of safety and stability was facing a test.
Despite those “near-term headwinds,” Blackstone sees significant opportunity to deploy capital at scale in the UAE, the firm’s President and Chief Operating Officer Jon Gray said at the time. Days later, soon after the US and Iran agreed to a two-week ceasefire, it unveiled another deal.
For years, Wall Street has been focused on expanding in the Middle East as the region’s sovereign wealth funds cut ever bigger checks, injecting life into an otherwise dour dealmaking market. But with Iran aiming missiles at major cities across the Gulf, executives have spent weeks grappling with one question: what happens when the region that drove the boom becomes the source of the risk?
So far, they’re rushing to establish themselves as loyal partners — keen not to alienate the oil-rich region that’s long been a lucrative source of funding, and with an eye on the next wave of business.
“Our support is unwavering,” Goldman Sachs Group Inc. Chief Executive Officer David Solomon told Bloomberg News. “Our clients’ ambitions across the region haven’t changed.”
At the heart of it, the titans of finance are betting that even a prolonged conflict won’t derail privatizations, delay asset sales or push wealth funds to redirect capital inward. Instead, they hope Gulf governments will seize the moment, as they have in past crises, and use their oil wealth to play an even bigger role.
Indeed, even amid the war, regional investors continued to deploy billions in transactions spanning alternative asset managers, private credit and technology platforms.
“The UAE’s overseas investment strategy will be relatively less affected,” said Steffen Hertog, a professor at the London School of Economics and Political Science. “They will want to signal they’re open for business and, if anything, building foreign partnerships has become even more important now.”
Wall Street has faced a new reality in the Middle East for a while now. The days of financiers flying in and automatically expecting big checks are long over. Instead, regional sovereign wealth funds, which collectively manage around $5 trillion, have made it clear they expect these firms to have more gatherings in the Gulf, set up local offices and bring more people to live and work in the region in exchange for their backing.
External observers caution that walking away now could have serious consequences, and even impact firms’ ability to partner with state-backed entities.
“Some investors will likely get spooked by regional developments with impact on their existing and planned investments in the Gulf,” said Robert Mogielnicki, a non-resident fellow with the Arab Gulf States Institute who runs Polisphere Advisory. “Yet Gulf capitals will look to prioritize those investors who stick through the harder economic times and are bullish on the region’s longer-term trajectory.”
Executives have so far been happy to rise to the occasion.
KKR & Co., which has plowed about $2 billion into the Middle East over the past year, remains “actively engaged alongside our regional partners,” according to Co-CEO Scott Nuttall. Brookfield Asset Management’s Connor Teskey said the region remains a compelling long-term destination for capital.
Earlier this week, Brookfield Corp. CEO Bruce Flatt met Abu Dhabi Crown Prince Sheikh Khaled bin Mohammed. The royal oversees the emirate’s newest wealth fund, created by folding sovereign investor ADQ into an entity called L’imad Holding Co.
“US private equity and infrastructure funds are making very supportive comments of Gulf wealth funds and governments,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy. “Those relationships will be in good standing.”
Few financiers have leaned more heavily into the region than Goldman’s Solomon. He attended Riyadh’s annual Future Investment Initiative last year and visited Kuwait — where the bank unveiled a local office and is jockeying for a $10 billion mandate from the Kuwait Investment Authority.
Over in Doha, Goldman is expanding a partnership with the Qatar Investment Authority in a move that could see the fund commit $25 billion with the firm’s asset management arm. The bank has even set up a team of top executives to strengthen its ties to the Middle East.
That group includes Anthony Gutman, co-CEO of Goldman Sachs International and global co-head of investment banking. Mideast sovereign wealth funds will “judiciously continue to engage, continue to deploy capital and continue to be active,” he said in an interview.
Meanwhile at JPMorgan Chase & Co., executives have been focused on protecting their lead. CEO Jamie Dimon has spent years building direct ties with sovereign wealth funds and oil companies across the Gulf, including Saudi Aramco — one of the Wall Street bank’s top clients globally. The oil giant’s revenues are first deposited at JPMorgan, giving it an advantage rivals have struggled to break.
Dimon was also the first port of call when the kingdom unveiled a record $55 billion deal for Electronic Arts Inc. At the time, JPMorgan underwrote a $20 billion debt facility to help investors including the Public Investment Fund take the firm private — the largest-ever commitment by one bank for a leveraged buyout.
The CEO and his top deputies make frequent trips to the region; one senior executive has already made arrangements to fly to the region within 24 hours of being able to do so safely, people familiar with the matter said.
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Still, rivals continue to try and muscle in. Citigroup’s Fraser has spent years trying to deepen her bank’s relationships with clients across the region. This year, those efforts finally started to bear fruit when Citi was awarded a role on a marquee asset sale by Aramco. That sale remains on track despite attacks on Gulf energy facilities, including Aramco’s.
“Each of my visits to the Middle East reinforced the same point: this is a region building for the future,” Fraser said in a memo to staff. “Momentum may have paused, but the forward trajectory for the Middle East has not changed,” she said in the note that was reviewed by Bloomberg News.
The race to the Gulf extends well beyond the largest US firms. Barclays Plc’s leadership has been making increasingly frequent trips to the region as it seeks a larger share of dealmaking and the bank recently said it would re-enter Saudi Arabia after a decade. While time-lines may shift slightly, those plans remain on track, according to a person familiar with the matter.
Representatives for Barclays declined to comment. A spokesperson for JPMorgan said its strategy in the region is “unchanged,” while a Citigroup representative said it has strong confidence in the resilience of regional economies.
There have been signals of commitment elsewhere.
A group of hedge funds recently shed their usual discretion to issue statements backing the UAE’s role as a financial hub, while other financial firms are continuing with their expansion plans.
“Our intention still is to open an office in Abu Dhabi, and we are continuing that dialog,” William Kadouch-Chassaing, co-CEO of European private capital firm Eurazeo SE, said in an interview. “We have some Middle Eastern sovereign funds that are currently doing their due diligence on some of our funds. They will remain long-term investors.”
For others, the longer-term opportunity remains the bigger draw. Speaking hours after Abu Dhabi’s Alterra said it would back a General Atlantic unit’s investment in a technology platform, the buyout firm’s Chairman and CEO William Ford sounded a bullish note.
“If you look over the horizon to a potentially more stable Middle East, and solving for the Iranian issue, this could be one of the most exciting regions in the world.”
–With assistance from Alex Dooler, Swetha Gopinath, Layan Odeh and Hannah Levitt.
(Adds General Atlantic CEO’s comment in the final paragraph; updates headline.)
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