The sovereign wealth funds of the Persian Gulf used to be relatively easy places for U.S. firms like Blackstone and Goldman Sachs to raise money. But recently, the power dynamics between Wall Street and Middle Eastern wealth fund managers have been shifting.
On today’s "Big Take" podcast, Bloomberg’s Heather Perlberg breaks down for host David Gura why Middle Eastern sovereign wealth funds are asking for more in return for access to their trillions — and what that means not only for investors but also the future of the region.
Here is a lightly edited transcript of the conversation:
David Gura: It used to be that when money managers in the U.S. needed to raise capital, there was a surefire source for it.
Heather Perlberg: They would go to Abu Dhabi, Qatar; and they would maybe spend an afternoon, a couple hours with the most important people they needed to see and then leave with these massive checks.
Gura: Heather Perlberg is a senior reporter on the wealth team at Bloomberg.
Perlberg: I cover everything from billionaires to the latest trends on Wall Street and everything in between.
Gura: And she says the breezy way Wall Street has found money in the Gulf — zipping between meetings with sovereign wealth funds in Saudi Arabia and Qatar and the UAE — is changing.
Perlberg: Things are completely different now. Now, they are really being asked and sometimes kind of required to do a lot more in the Middle East. It’s a complete shift.
Gura: Today on the show: the shifting power dynamics between Wall Street and the Middle East, and what those changes mean for the region, for geopolitics and for investors. I'm David Gura, and this is the "Big Take" from Bloomberg News.
Gura: Heather Perlberg told me she noticed something had changed about the relationship between U.S. asset managers and the Middle East on a recent reporting trip to the Gulf.
Perlberg: When I was down there, I spent time in Doha, I spent time in Dubai and Abu Dhabi, and almost everyone I talked to had mentioned a kind of shift in the power dynamic. The intermediaries who are helping raise money for the biggest U.S. investors were talking about it. So it feels, when you're in the region, almost palpable that they are in this position of power that they really have never been in, like this, quite before.
Gura: Heather says there are a few reasons for this shift. One is that, increasingly, the sources that U.S.-based money managers have tapped for funding are running dry.
Perlberg: We have a situation in the U.S. where a lot of the longtime, large institutional investors like the U.S. pension plans are kind of tapped out. They don't have much money to give.
Gura: But U.S.-based asset managers like JP Morgan, Goldman Sachs and Lazard are not willing to just stop growing.
Perlberg: So the only way these guys are going to keep growing is if they continue to suck in money from the biggest institutional players in the world.
Gura: And many of the biggest institutional players in the world are Middle Eastern sovereign wealth funds, which have a lot of money. All together, they’re worth nearly $4 trillion. Which means …
Perlberg: You have the money, you can make the rules.
Gura: Rules like lower fees.
Perlberg: So there used to be this very typical fee structure that was known as “2 and 20.” So the private equity firms and hedge funds would get a management fee.
Gura: 2%.
Perlberg: And then they would get a percentage of profits.
Gura: 20%.
Perlberg: Now that has been kind of fading over time and now essentially thrown out the window. So these funds are now saying, well, we're not, we're not doing that anymore. We're going to pay you lower management fees, and we're going to take more of the profits.
Gura: And in some cases, they are saying — the hell with paying you to invest our money for us, we want in on the deal sheet alongside you. We want to be co-investors.
Perlberg: They want to be kind of flush left in this coveted position when the deals are written up. They want their name in lights. They want to have kind of street cred for working behind the scenes on putting these deals together so they can become more relevant on Wall Street and in the broader investing world.
Gura: Heather says part of the strategy here is just to become less dependent on big U.S. firms. Which is why these sovereign wealth funds have been pushing for another thing. They've been asking U.S. asset managers for more when it comes to training local talent. U.S. firms had done this type of training before, but it used to be that they could dictate the terms
Perlberg: They would often be able to push back and say, no, that's too many people, or we're only going to do it for two weeks, not four.
Gura: But now…
Perlberg: It feels like their tolerance for it is increasing, and it's happening more frequently.
Gura: So these sovereign wealth funds are effectively pushing for people in the region to go and work with a Blackstone or go and work with another large asset manager?
Perlberg: Exactly. And in some cases, they're on these investing teams working on deals. So they want them to have a better understanding of how to do deals themselves. So they can become more sophisticated and lean less on the Blackstones of the world to be able to make money.
Gura: So what do these shifting power dynamics mean for the future of the region? That's next.
Gura: Sovereign wealth funds in the Gulf have become more and more powerful. And as new Bloomberg reporting reveals, they're not afraid to show it. In exchange for providing capital, they want to get more from U.S.-based asset managers — like more favorable terms, more partnership opportunities and more jobs in the Gulf. But that transition hasn’t been without bumps.
Perlberg: There have been some issues, especially back at the start of the Israel Hamas war
Gura: After October 7th, a number of executives at big U.S. asset managers, like Larry Fink of Blackrock and Marc Rowan of Apollo, spoke out in support of Israel. You can hear how forcefully Rowan responded to that attack, in an appearance on CNBC.
Marc Rowan: This is a group, Hamas, that believes that the Jews should be killed. Read the charter. Behind every rock you shall seek out the Jews and kill them. This is what we're talking about. This is not about a political solution or disagreements over how Israel has treated Palestinians in the West Bank and Gaza. This is a group that is a terrorist group. The inability to actually say that is morally confused and bankrupt.
Gura: How did that resonate? How did that threaten to change or upset the relationships that have been established?
Perlberg: Well, the UAE has a relationship with Israel, and some of the biggest and more sophisticated investors are there. I think it gets sticky when you talk about Qatar's investing firm, QIA; when you talk about Kuwait. I think after Larry Fink came out really strongly in support of Israel. There were protests happening in Kuwait, but he did end up going down there, and it didn't seem to be any sort of travesty. It doesn’t seem to curb those relationships. It doesn't seem to stop the money flow. It just adds nuances that need to be kind of worked through.
Gura: And for the most part, these issues haven’t stopped U.S. firms from continuing their efforts to court Middle Eastern cash. Nor have they prevented sovereign wealth funds from increasing their demands — from lowering fees, to co-investing, to asking U.S. firms to grow their presence in the region. For instance, take Saudi Arabia.
Perlberg: In Riyadh, they are really pushing for more of that. They're pushing for people to open up headquarters, and sometimes deals are contingent on that. They'll say we'll give you money or we'll do this deal, but you have to apply for a regional license. And it's a little bit of a quid pro quo element, and it seems to be working.
Gura: But Heather says all of these moves — while they might help U.S. firms raise cash in the short term — could pose issues down the line.
Perlberg: People used to joke that you could go to ADIA or Mubadala and just sit in the lobby and see a rotating cast of U.S. funds going through on, you know, a random Tuesday. But at this point, they are really narrowing their relationships. So the sovereign wealth funds are choosing fewer managers that they can give more money to.
Gura: Recently, Abu Dhabi’s sovereign wealth fund, Mubadala, started its own investment arm — effectively cutting out the Blackstones and the Goldmans.
Gura: Do you think that we're going to see that happen at other sovereign wealth funds in the Middle East?
Perlberg: Yeah, Mubadala did start its own investment arm, and I think part of that is just having the wherewithal to do their own deals. They don't need to depend on global fund managers to find investments to find a place to put their money, and then they don't have to pay fees. So I absolutely think you're going to see more of that. Once they figure out how to structure these deals and they have the right people internally doing it, it makes sense for them to kind of skip the middleman and just do these deals themselves.