Blackstone has committed more capital to the Gulf region in the past 12 months than at any point in its history, and it plans to invest more despite geopolitical headwinds, its chief executive has said.
Despite the months-long war, the investment appeal of the Gulf remains intact, Steve Schwarzman, who is also chairman and co-founder of the world's largest alternative asset manager, told The National.
The $1.3-trillion investor aims to substantially grow the percentage of its assets under management in the Gulf, within its broader Europe, Middle East and Africa portfolio, by the turn of this decade.
“I would say it would surprise me if it weren't three to four times larger from the current level,” Mr Schwarzman said, without disclosing the dollar number.
Last year, he said that the company’s combined asset base in Europe and the Middle East had grown to $400 billion and there was an opportunity to boost it to $500 billion in Europe alone by 2035.
Deals flurry
Blackstone, which has been in the Gulf for more than 15 years, has already stepped up the pace of investment in the region through a flurry of deals over the past 12 months.
In July, the firm invested $16 billion, in partnership with global investors, in the Kuwait Oil Company's crude oil pipeline network. In March Blackstone also announced a $250 million allocation in Abu Dhabi's Advanced Digital Gaming Technology.
The group followed that with another partnership in April, teaming up with Dubai Aerospace Enterprise to invest about $1.6 billion annually in aircraft leasing.
Maturing Gulf
The big-ticket $16 billion investment in Kuwait reflects the company’s growth ambitions in the region.
Global investors such as Blackstone have historically focused on capital-raising from the region. However, they are now pivoting towards investing; competing for opportunities in the region's digital infrastructure, technology, real estate, and energy sectors.
The Gulf's role as a global capital exporter is reversing, with a rapid rise in its own financing needs, Mr Schwarzman said.
“That has to do with the maturity of the region and people look at it and say, ‘there's something going on here’ [and] that is changing the way we're looking at this region,” he said.
In October last year, Blackstone created Glide, a $5 billion logistics platform, in collaboration with Abu Dhabi’s Lunate. A month before that, Blackstone had participated in a $525 million financing round for UAE property portal Property Finder.
Blackstone, which manages more than $200 billion in data centres and AI-related infrastructure, has also expanded its tech investment footprint in the Gulf.
Its portfolio company AirTrunk struck a $3 billion data centre deal with Saudi Arabia's Humain, which is the first of potentially many deals elsewhere in the region, including the UAE, he said.
"There are opportunities to collaborate with what's going on in Abu Dhabi, which in AI, is the most progressive, most informed, most advanced," Mr Schwarzman said.
"It also has the advantage of nuclear power and it's pretty remarkable all the things that are being done in Abu Dhabi.
Global investors who visit the region can see changes that are "really fascinating", he said, and when a place such as the Gulf reaches critical mass, “all of a sudden it becomes really interesting”.
Growth ambitions
Blackstone, which established its first office in Abu Dhabi in 2010, is rapidly growing its regional presence.
The company has expanded the scope of its Abu Dhabi licence. It has also opened an office in Kuwait and is about to officially launch dedicated private wealth operations in Dubai.
“We're going to have offices, in pretty much every country,” Mr Schwarzman said.
“We expect to be over time putting more capital in the region from a global perspective, because you tend to make more money in our lines of business, where there's rapid economic growth."
Undeterred
Blackstone, like its global peers, remains undeterred despite the continuing Iran conflict that is now in its eighth month.
“It obviously changes the risk profile of the region, but we're longer-term investors, and I think the people who deal with the region, who provide capital, realise that there are very smart people running these countries,” Mr Schwarzman said.
Sovereigns in the region, he said, are willing to spend whatever it takes to expand the infrastructure, which will kickstart a new construction boom as soon as the conflict is over.
“From talking with the heads of these countries, it's pretty clear they're going to spend whatever it takes to create a much safer environment, for their long-term economic plans,” Mr Schwarzman said.
“The commitment to engineering safety and to protect their infrastructure over the next two to three years is going to be a very intense period, and so in that sense, they'll rebuild their economies.”
Headwinds
The US-Iran war has severely disrupted economic momentum in the Gulf region, with the International Monetary Fund estimating a 4.8 per cent contraction this year. It is set for a 9.1 per cent rebound in 2027.
“But what's interesting, beyond that, is that it is temporary and we expect all of the Gulf to go into rapid growth mode once this conflict is resolved,” Mr Schwarzman said.
Construction boom
The push to protect and expand the infrastructure will be among the main drivers of the next phase of economic activity, he said.
“One of the things that's going to happen in the Gulf, that's probably been underestimated, is the amount of spending to protect the infrastructure,” Mr Schwarzman said.
Blackstone anticipates a “very substantial construction boom”, as countries in the region push to move vulnerable infrastructure underground.
Gulf nations will need to rebuild their economies if Iran remains “a structural problem” for them for years to come, Mr Schwarzman said.
“I'm not enough of an expert to know what the response will be, but there are a lot of different scenarios that you could have, and it strikes me that just being a recipient of that aggression forever is an unlikely scenario.”
Infrastructure basket
Currently, the broader Middle East and North Africa region requires an estimated $900 billion in financing for infrastructure projects. British lender HSBC estimates that the finance pipeline in the UAE alone is more than $190 billion, about 22 per cent of the broader Menat total.
The report, released last week by HSBC, has identified $872 billion worth of individual project packages within a wider $1.4 trillion pipeline of planned and unawarded infrastructure projects.
“I can speak for us, but I don't think others like us are particularly different, and we see this as a very good long-term place for growth,” Mr Schwarzman said.