Earlier this 12 months, U.S. President Donald Trump made his first overseas go to to not Europe or Asia, however to 3 international locations within the Center East: Qatar, Saudi Arabia, and the United Arab Emirates. Every of those Gulf monarchies has constructed up sovereign wealth funds which might be, along with serving as investments, devices of sentimental energy and state aims. Jared Cohen and George Lee, two co-heads of the Goldman Sachs International Institute, described in Overseas Coverage how these sovereign funds “are actually among the many most consequential asset homeowners and allocators of capital within the world financial system.”
Cohen joined me for a taping of FP Stay on the sidelines of the Doha Discussion board in Qatar final weekend. The episode is a part of a partnership this 12 months between FP and the Goldman Sachs International Institute.
Ravi Agrawal: Let’s begin with some fundamental definitions. What’s a sovereign wealth fund? Why have they turn out to be more and more vital?
Jared Cohen: If we step again for a minute, the concept the Center East has a ton of wealth is just not new. The existence of sovereign wealth funds is just not new both. Kuwait had the world’s first sovereign wealth fund in 1953, and its origin story is fascinating. When Sheikh Abdullah [al-Salim al-Sabah], the ruler of the emirate of Kuwait, attended Queen Elizabeth’s coronation, he acquired a dressing down from British Prime Minister Winston Churchill. Churchill was frightened that Kuwait was changing into too rich and that it was going to screw up the London Inventory Alternate and the sterling. The sheikh ignored him, and but, per week later, an all-British board and a British governor was working the primary sovereign wealth fund on the planet.
Quick-forward to in the present day, we’re speaking about this as a result of you’ve $14 trillion of sovereign wealth worldwide. A few of that sovereign wealth comes from commodities and a few of it comes from commerce surpluses and different revenues. Of that greater than $14 trillion, $5.6 trillion is concentrated in 4 international locations within the Center East: Saudi Arabia, Qatar, the UAE, and Kuwait. To place that in perspective, there was solely $2.3 trillion concentrated in these 4 international locations in 2015. By 2030, it’s going to be $8.8 trillion concentrated in these 4 international locations.
From 1953 till the 2010s, sovereign wealth funds weren’t that fascinating of a narrative. It was largely passive investments, nothing significantly strategic, not one of the flashy issues that you simply see in the present day. However when a brand new group of leaders got here to energy in Saudi Arabia, Qatar, and, to some extent, the UAE within the mid-2010s, they only introduced a unique set of ambitions. They needed to diversify their economies. They needed to maneuver from following in science and expertise to main. And so they needed to align the deployment of their capital to their geopolitical targets. The issue was the area was caught in a world conflict on terror framework. Geopolitics have been driving financial pursuits, despite the fact that they needed it to be the opposite manner round. They couldn’t understand these ambitions in a manner that the world would embrace. And so, they spent their time determining methods to construct the capabilities, sophistication, and turn out to be world-class traders.
Then COVID-19 occurs. The geopolitical middle of gravity shifts from the Center East to Washington and Beijing. The world will get thrown into this new paradigm of U.S.-China competitors. Abruptly, we discover ourselves within the period of what we name “instrumental capital.” These 4 sovereign international locations profit disproportionately from sustained tensions between the US and China. Instrumental capital is state-directed capital deployed with the twin mandate of producing each outsized monetary returns and in addition projecting state energy that’s accretive to what they’re making an attempt to do domestically and internationally.
RA: I wish to linger slightly bit on why this particular second is so vital. The thought of sovereign funds is just not new, going again to the Dutch and British East India corporations. But in addition, the variety of sovereign wealth funds is manner bigger than these 4. There are 170 of them. What’s it about this second and these explicit ones that strike you as so completely different, vital, and influential on the planet?
JC: An enormous a part of it’s that these international locations have turn out to be a few of the most vital and largest homeowners of a few of the shiniest belongings in the complete world. They’re not simply capital allocators. Let’s take AI for example. If AI is a very powerful expertise because the web, it’s unattainable to think about any important deal occurring within the AI area with out having a sovereign in the course of it. This isn’t all AI offers, definitely, however in the event you take a look at the Center Japanese sovereign wealth funds, they accounted for $56.3 billion of world deal circulation in simply the primary 9 months of 2025. That’s 40 p.c of all world offers. That’s why they matter. They don’t matter as a result of they’ve 1.4 billion individuals. They don’t matter as a result of they’ve the world’s largest navy. They don’t matter as a result of they’re the world’s largest international locations. Whereas this wealth is fueled initially by commodities, these sovereign wealth funds have grown as a result of they’ve additionally been on a diversification journey.
The opposite motive it issues is due to geopolitics. In a world the place the US and China are locked in a contest with one another however are nonetheless one another’s third-largest buying and selling accomplice, they will’t acquire the higher hand with out counting on different international locations. Saudi Arabia, Qatar, the UAE, and Kuwait are 4 geopolitical swing states. They’re capable of assert themselves economically. They’re in a position to decide on which aspect they work with on which problem. That provides them an unlimited quantity of leverage. What’s completely different in the present day is that they’ve the sort of capital—no pun supposed—to capitalize on that. The businesses that they select to spend money on or not spend money on sends a sign to the market about which corporations are undervalued and which corporations is perhaps overvalued. Along with being homeowners of belongings and traders, they will additionally form the notion of the market.
RA: It’s just like the Warren Buffett impact. The purpose you made about geopolitical swing states aligning with capital is vital as a result of, as you alluded to, India has 1.4 billion individuals, and it doesn’t have that potential to make use of its swingy nature to have an effect on how different international locations do enterprise.
JC: That’s an incredible analogy. It’s exhausting not to take a look at India and say they’re the last word geopolitical swing state. However precisely as you talked about, Ravi—with out a huge sovereign wealth fund and the power to deploy capital in a short time at scale and at will, in a manner that carries important penalties, they will solely be so swingy. They’re capable of be geopolitically swingy when it comes to how they align and who they courtroom. However the 4 international locations within the Gulf will be very lively and really proactive in what they’re making an attempt to do geopolitically. They’ve the power within the world south, as an illustration, to principally determine who will get a knowledge middle and subsequently who will get to play within the AI area. They acknowledge that each nation on the planet has the identical variety of votes in multilateral our bodies, and the deployment of capital in a small island nation has the identical quantity as Brazil, Mexico, or Canada.
RA: However the flip aspect of that is that when India makes a mistake, there are checks and balances, and the error doesn’t are usually as unhealthy. The Gulf international locations we’re speaking about proper now don’t have that. How a lot does it matter that a few of these massive bets may be unhealthy bets?
JC: This ties to demographics. Let’s take Saudi Arabia, which is exclusive in that it has 35 million individuals, way over the opposite three international locations. It views a lot of its deployment of sovereign wealth via the lens of leveling up human capital. Traditionally, Saudi Arabia has a convention of service provider households. They’re making an attempt to shift towards a convention of thought management, entrepreneurship, and constructing an actual capital market and startup ecosystem. That’s not going to occur naturally, in order that they’re making an attempt to make use of sovereign wealth to speed up the method. However a part of doing which means preserving individuals within the nation. Individuals suppose that a whole lot of these giga tasks—the cities of the longer term and so forth that make the headlines—try to draw individuals from Europe to return and make it the brand new French Riviera. As a substitute, it’s way more of a Saudi-for-Saudi thesis.
There’s two issues that Saudi Arabia is doing to strive to make sure that a mind drain doesn’t get in the way in which of constructing a information financial system. The primary is enhancing the infrastructure and making Saudi Arabia the kind of nation that individuals are excited to develop up in and keep in, in order that they don’t lose their high expertise. The second is social reforms which might be designed to enhance livelihood.
The problem is that when oil is hovering within the $50s, low $60s, or excessive $40s per barrel, it’s a really completely different state of affairs. That is the distinction between instrumental capital and simply common lively funding. It’s long run, it’s affected person, and it’s designed to climate financial turbulence. As a result of it has a strategic premium connected to it, you’re more likely to see recalibrations than pivots. So Saudi Arabia is just not backing away from these massive tasks, even when the fiscal state of affairs domestically is proving difficult, and the debt-to-GDP ratio is greater than they’d prefer it to be. They’re delaying and slowing down, however they’re nonetheless making room for brand spanking new tasks. They’ve the World Cup developing, they’ve the Expo developing. However when oil is beneath $60 a barrel, the reply can’t be to maintain including tasks and prioritizing them at equal scale.
RA: In order that’s Saudi Arabia, which has 35 million individuals. Each the UAE and Qatar are a lot smaller, with tens of tens of millions fewer individuals. How does that influence how they give thought to development?
JC: Persevering with the story of demographics, in the event you take a look at Qatar, there are 300,000 Qatari residents. You had extra seats in World Cup stadiums in the course of the World Cup than you had Qatari nationals. I’ve been coming to Qatar since 2006, and none of this was right here. They principally constructed all of this infrastructure within the lead-up to the World Cup. The World Cup was the IPO for the trendy state of Qatar—its reintroduction into the world. Now the nation has a few of the greatest infrastructure on the market, however they should discover a option to entice one other two and a half million individuals to fill out all that infrastructure. They don’t simply need random individuals coming. What they need is extremely expert human capital that may assist them get to the subsequent step of their journey as a sovereign nation.
One factor we haven’t talked about, which can be a part of the state-led monetary revolution, is the nationwide champions. A few of Qatar’s greatest manufacturers are its nationwide champions. Qatar Airways, a state-owned enterprise, employs 50,000 individuals. Should you’re a very sensible individual and also you wish to work for an airline, you can transfer your loved ones to Doha to get a job at Qatar Airways. Identical for Qatar Nationwide Financial institution, the most important Arab financial institution on the planet. It has 20 million prospects throughout 28 completely different international locations. These prospects are corporations that may pay high greenback, brand-name, blue-chip corporations. Qatar Power has $43 billion of income each single 12 months. Al Jazeera has an viewers of 430 million worldwide. The listing goes on. Nationwide champions has been essentially the most profitable thesis at attracting human capital to Qatar. The issue is that they don’t have sufficient nationwide champions. Qatar’s strategy is principally taking a look at areas the place they’ve some differentiated worth add and doubling the variety of nationwide champions over the subsequent 5 to 10 years.
RA: What in regards to the UAE, which appears to have relied on a unique D: diversification.
JC: Sure. The UAE is fascinating as we proceed our demographic narrative. It had the primary mover benefit. Dubai got here first as a mega metropolis, then Abu Dhabi shifted from being not only a political capital to however a enterprise capital. Everybody arrange their regional headquarters there. It grew to become the place that individuals wish to reside. That’s a really highly effective first mover benefit.
The UAE is the one one of many massive 4 international locations with huge sovereign wealth funds that doesn’t actually have a problem attracting new individuals. However they don’t wish to lose that benefit, so that you see them persevering with to speculate. It’s a narrative of resilience. They wish to be resilient to what they’ve constructed. Loads of how the UAE is deploying its sovereign wealth, along with resilience at house, is about rising because the world’s biggest sovereign investor. ADIA [the Abu Dhabi Investment Authority] is a world-class options asset supervisor platform. Identical with Lunate. ADQ is a world-class funding platform within the home industrial base. Mubadala was essentially the most lively sovereign wealth fund on the planet this previous 12 months. Of that $56.3 billion that I discussed earlier that was deployed from the sovereigns, I believe $17.4 billion of that was Mubatala. They’ve a lot of spin-offs. UAE is the one considered one of these international locations that has an ecosystem of sovereign wealth funds. A few of that’s reflective of the truth that the nation is a federation of various emirates, in order that structure spills over into how they arrange their sovereign wealth funds. However they’re actually set as much as be a sovereign when it comes to how they make investments. They’ve had a whole lot of success on this. Now 70 p.c of their output is non-oil associated. It’s been a profitable story of diversification.
RA: I wish to spotlight the distinction between these sovereign wealth funds we’ve been discussing within the Center East and say, for instance, Singapore or Norway. Why are they so completely different?
JC: You will have 170 sovereign wealth funds around the globe. Past the truth that greater than 40 p.c of that wealth is concentrated in 4 international locations within the Center East, there’s two different kinds of meta-categories of sovereign wealth funds. There are sovereign wealth funds that have been constructed or funded via revenues from commodities, and there are sovereign wealth funds that have been constructed on revenues from commerce surpluses and different sources. Singapore falls in that [second] class. China falls in that class.
Norway, which has a ton of oil, is an fascinating one as a result of it represents one other instance. Their sovereign wealth fund is the most important on the planet by belongings below administration. It’s $2-plus trillion. It’s ruled by parliament, and it’s all public investments. I’m oversimplifying however consider it like an index: They’ve a place within the overwhelming majority of shares around the globe. What’s additionally fascinating about Norway, the place you see a strategic factor of it, is that as a rustic, considered one of its greatest priorities is local weather change and renewables. They connect what they’re doing from an funding perspective to corporations and their adherence to inexperienced vitality.
RA: So, with this rise of instrumental capital, you can have a world that’s winner-take-all. Individuals or international locations which might be not noted would then react in several methods, inflicting resentment and regional instability. Are the leaders of those international locations taking these dangers critically?
JC: You possibly can take a look at it on a pair completely different ranges. One is the area itself. One other is a selected vertical, just like the AI area. And a 3rd is the remainder of the worldwide south or growing world. Let’s take every of these one after the other.
The Center East in the present day is a story of two sorts of nations. You will have international locations whose financial futures are utterly divorced from what occurs geopolitically within the area (Qatar, Saudi Arabia, Kuwait, UAE) and international locations whose financial futures are deeply intertwined within the geopolitical messiness of the current and the previous. These are international locations that don’t have a whole lot of financial sources, they’re besieged by proxy teams and extremists, or they’re in kind of a tough neighborhood with porous borders. Israel is sort of a hybrid of the 2. When there’s an instantaneous disaster, like there was after October 7, all of the international locations within the area will have interaction. However now we’ve shifted again to a set of issues we’ve been grappling with for a number of generations. You’re left with a state of affairs the place the international locations which have the capability don’t actually have the need, and the international locations which have the need don’t actually have the capability. Should you take a look at Saudi Arabia, Qatar, and the UAE specifically, all they’ve ever needed is their financial curiosity to drive the geopolitics and never the opposite manner round. Now that’s the case, it’s not that they don’t care about these units of points, however their priorities as a rustic have remodeled because the finish of the Battle on Terror. That’s the regional view.
With the worldwide south, in an effort to agree with what I’m saying, you’d have to purchase right into a thesis that I’ve: I don’t suppose both the US or China wins the AI race. I believe each are going to collectively win. Why? As a result of this isn’t about chips. That is a couple of utterly built-in provide chain that powers knowledge facilities. The US and China suppose they’re competing towards one another—and they’re—however in making an attempt to compete with one another, they’re reinforcing the linkages within the provide chains which might be fueling the AI revolution. The excellent news about that’s it’s creating area for international locations like those within the Gulf to step in and reap the advantages of the spillover from that competitors. You’re seeing international locations just like the UAE spend money on knowledge facilities in Kenya, Ghana, completely different elements of sub-Saharan Africa, Indonesia, elements of the Affiliation for Southeast Asian Nations, Latin America. There’s a hierarchy that’s growing within the world south. These states which might be geopolitical swing states partly due to their sovereign wealth are stepping up and providing a hedge or a diversification from the US and China.
RA: We haven’t talked about the potential for the US having its personal sovereign wealth fund, however in a way, industrial coverage is a part of all of this anyway. That’s one thing the US and lots of different international locations have been doing.
JC: I believe the dialogue a couple of U.S. sovereign wealth fund is a little bit of a distraction. The talk is precisely what you’re speaking about: What ought to U.S. industrial coverage appear to be? Ought to the U.S. authorities be doing huge subsidies via issues just like the Chips and Science Act? Ought to they be taking stakes in public corporations? That’s the debate that issues. The sovereign wealth fund factor is simply sort of a entrance finish.
The fact of sovereign wealth funds is that they’ve proliferated as a result of the US is the one nation with deep capital markets. A part of the explanation China has been so reliant on sovereign wealth is that it’s been a option to compensate for lack of deep capital markets. Identical with the Gulf international locations. Should you take a look at their potential to take part in world capital markets, it’s due to their sovereign wealth funds. I take a look at a sovereign wealth fund in the US as an answer seeking an issue. However the debate about industrial coverage is actual.
