Middle East sovereign funds don't do small deals: a Chinese GP waits at least 18 months for a first check
Middle East capital is a dumbbell: sovereign funds and family offices at both ends, nothing in the middle. Sovereign funds are going increasingly direct — they want co-investment and industrial landing, not financial returns.
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Middle East capital is a dumbbell, and the middle is empty
Western capital is a three-tier structure: large sovereign funds and state teachers' pension funds at the top, university endowments in the middle, family offices at the bottom. The Middle East is completely different — that middle layer basically doesn't exist, only state sovereign funds and a large number of family offices at the two ends. Bill warns that the ROI on visiting family offices is actually not high — they have money, but they are low on institutionalisation, their fund investing experience is often limited to European and American funds, their diversification is mainly through real estate, and their allocation to alternative assets is insufficient. So a GP's time ultimately converges on sovereign funds and corporates.
— BillSovereign funds are going direct because they don't want to pay 2% and 20%
Bill points out that large sovereign funds are gradually going direct, and this is not just a Middle East trend but a global one. The mechanism is straightforward: investing in a fund means paying a 2% annual management fee and 20% carry, and as they build their own organisational capability, sovereign funds can either invest directly or poach people from their own GPs or other major banks, pay them very high salaries and have them invest directly. So the direct investment share of sovereign funds is rising. This means GPs are not just competing with peers — the LP itself is entering the field.
— BillMiddle East LPs understand China better than you think
Bill gives Chinese companies and investors two lessons: first, they are far more familiar with China than we understand; second, they care more about what you can bring to the region's economic development — whether that is setting up a branch or bringing jobs. Do those two things and you have a better shot than other peers. He adds that these sovereign funds have fully staffed China teams, they speak Mandarin, travel to China frequently, and know clearly which Chinese GPs are good. This setup has existed for over a decade, just not at the scale of CPPIB or OTPP.
— BillThe Middle East may overweight China in the future, not just fill in 5%
Bill sees two opportunities for Middle East LPs allocating to China. The first step is to raise an allocation of under 5% to a level on par with other funds; the second step is to overweight — a point many people have not yet noticed. The logic for overweighting has three layers: from their perspective, overweighting China gives them more Chinese resources and technology, things that are beyond money; China's GDP is about 20 trillion out of a global 90 trillion, and that proportion itself demands allocation; holding Chinese assets gives more RMB exposure, reducing sovereign financial risk and geopolitical risk under a multi-currency framework. But he makes clear this will not be a Great Leap Forward, because a Great Leap Forward would push up the value of the assets to be allocated, which is good for no one.
— BillMiddle East LPs on this year's visitors: welcome, plus fatigue
Bill says the Middle East LP attitude is first welcome, second a bit of fatigue, because constantly hosting people is tiring. He points out a perception gap: Chinese visitors sometimes think you don't understand China, let me explain it to you properly, but actually they understand China quite well; visitors say invest in my fund, and they think we have been investing in Chinese GPs for how many years, we have invested in Sequoia and Gaorong for how many vintages, what we care about now is how many jobs and how much advanced industry your fund can bring to our region.
— BillA first investment in a GP takes at least 18 months
Bill advises this wave of GPs to lower expectations and manage them well: a large institutional LP investing in a GP for the first time needs at least 18 months to get to know them, some maybe longer, and will observe you for one or two fund vintages before investing. And petrodollars are still dollars, they have observed China for many years, and the Chinese GP market is moving from a hundred flowers blooming to concentration at the top. If he were petrodollars, he would also keep investing in the concentrated top GPs. So most of the people who came this year are still in the process — everyone can meet, but whether results can be developed in the end requires follow-up effort.
— BillA sovereign fund chief is first an official; being a businessman is the job
Bill says the title of a sovereign fund chief on the official website is usually H.H. (His Highness) or H.E. (His Excellency), a member of the royal family or an important noble family. When dealing with them, note: they are both nobles or royals, and they first consider themselves important officials of the country, and only second the head of an institution — the political attribute and social status attribute are primary, the businessman attribute is just the job. Bill also says most funds actually cannot get in touch with them; a formal meeting in China might require a minister-level official or a formal diplomatic occasion, and ordinary exchanges are first with middle management or regional teams, with investment opportunities then bubbling up from below.
— BillThe Middle East has no VC ecosystem; startups rely on family offices and friends
Bill says there are very few local VCs in the Middle East, the whole AOM might not exceed a few billion dollars, very small. Sovereign funds themselves do not participate in small project investments, so local startups often rely on family office or relatives and friends for funding, with no complete VC ecosystem. The reason is that the Middle East has played two roles in the past: a financier projecting to the world, and a market accommodating global big brands to expand, but its own talent pool is insufficient. So you rarely hear of unicorns from the Middle East — for video they use Douyin, for search Google, for e-commerce Amazon. It is an important market, but it produces few local founders.
— BillIn their own words · checked verbatim
It is a reverse index of the global economy; in a sense, this side is actually a bull market, not a bear market.
它是全球经济的一个反向指数，就这边某种意义上，它其实现在是牛市而不是熊市。
Bill22:10
I think their impression and attitude is first welcome, and second there will be some fatigue, because — yes, yes, yes — because everyone is always hosting, and it actually feels quite tiring.
我觉得他们的印象态度首先是欢迎，其次呢是会有一些疲劳，因为这个，对对对，因为这个大家就是老是搞接待，其实也觉得挺累的。
Bill31:17
Figures
| Phoenix Mining's share of global Bitcoin network hashrate | 7% | 2:03 |
| Investment in the Phoenix-ADQ joint venture mining farm | 500 million USD | 2:03 |
| Chinese e-commerce GMV as a share of total retail sales | 25% | 4:04 |
| Middle East sovereign funds' allocation to China | Most below 5% | 24:58 |
| China GDP in 2021 | 17 trillion USD | 27:23 |
| Global GDP (2020 data) | 85 trillion USD | 27:23 |
| UAE statutory annual leave | 22 days | 1:03:44 |
| Dubai housing price (analogous to Beijing East Third Ring area) | About 40,000 RMB/sqm | 43:28 |
| Dubai property rental yield | 6% to 9% | 43:28 |
Glossary
- LP / Limited Partner
- The capital provider, who gives money to a GP to manage and does not make investment decisions directly.
- GP / General Partner
- The fund manager, responsible for fundraising, investing and exiting, and collecting management fees and carry.
- family office
- A private institution managing wealth for a single family, flexible in decisions but low on institutionalisation.
- carry / carried interest
- The GP's share of the fund's excess returns, usually 20%.
- ADQ / Abu Dhabi Developmental Holding Company
- Abu Dhabi's newer sovereign fund, focused on local and regional market investments.
- ADIA / Abu Dhabi Investment Authority
- Abu Dhabi's established sovereign fund, an early allocator to global markets.
How to listen
GPs raising in the Middle East now or planning to, founders who want Middle East money, and investors who need to understand how sovereign funds make decisions.
42:05 to 50:53 — Dubai housing prices, cost of living and the startup ecosystem. Information density is clearly low.