Dubai – The total amount under the management of sovereign funds will reach USD 15 trillion in 2020, according to Fatima Al Arabi, from Saudi Arabia, an expert in the sector and founder of Alaf Capital, an investment consulting firm. She was one of the speakers in a panel discussing sovereign and private equity funds and strategies for sustainable investments this Tuesday (10) at the Annual Investment Meeting (AIM), a conference being held in Dubai, United Arab Emirates.
Fundos soberanos são formados por governos para usar o dinheiro proveniente de alguma atividade básica, como exportação de commodities, para garantir que a riqueza será utilizada em prol de gerações futuras. Os países árabes do Golfo mantêm fundos do gênero que investem petrodólares em diferentes setores ao redor do mundo. Eles são uma fonte importante de investimentos estrangeiros diretos (IED).
Sovereign funds are set up by governments to use the funds generated by some basic activity, such as the export of commodities, to ensure that the wealth will be used on behalf of future generations. The Arab countries in the Gulf keep this type of funds to invest petrodollars in different sectors across the world. They are an important source of foreign direct investments (FDI).
In this sense, there’s a valid and important concern with sustainability, given the mission of these funds of supporting future generations. “Sustainability is the focal point of the sovereign funds,” said Fahad Al Sharekh, from Kuwait, managing partner of investment company Techinvest.
However, the CEO of investment bank Emirates NBD Capital, Ahmed Al Qassim, said that investors pay more attention to the return than the project’s sustainable features, unless the fund that is investing the money is required, by its regulation, to invest in sustainable ventures, or if it’s managed under the Islamic finance regime.
However, Fatima Al Arabi said that profitability and sustainability are not mutually exclusive. She mentioned the funds that follow the Islamic traditions. “The Islamic finances are about social sustainability,” she said. According to her, the system operates with a low risk rate and doesn’t invest in companies that make use of child labor or that produce weapons, for instance, or, yet, that make use of bleach in ship cleaning, since it pollutes the ocean. “The investment has to be worthwhile to society,” she said.
Sharekh, from Techinvest, explained that has been a change in the sovereign funds’ investment profile in the last few years. Up to the 2008 financial crisis these funds used to invest more in the real estate sector and public bonds, but now they have migrated to stakes in private businesses and supplying funds to new ventures (private equity and venture capital). “After the crisis, they realized that they had to diversify,” remarked Sharekh.
And part of these resources is being directed to start-ups and not only to mature companies. He mentioned, as an example, development projects in the food products industry and experimental agriculture. Sharekh added that private equity and venture capital firms currently have around USD 1 trillion in funds available, just sitting in the banks.
Fatima Al Arabi also said that Africa should be a major focus of the funds in the near future. “There’s unlimited potential,” she said.
Translated by Sérgio Kakitani