Funds from China are Increasingly Turning to Middle Eastern Sources as US Investments Decline

Funds from China are Increasingly Turning to Middle Eastern Sources as US Investments Decline

By Staff Writer, 12 October 2023

Chinese funds are actively seeking fresh capital sources in the Middle East and other markets, a strategic shift that may reshape investment patterns due to escalating diplomatic tensions and risks that are prompting several U.S. investors to divest from China.

Seven China-based equity funds, encompassing hedge funds and mutual funds with a combined asset base exceeding $500 billion, confirmed their efforts to raise funds in the Middle East this year, with three of them embarking on this endeavor for the first time.

Concurrently, Middle Eastern investors express a growing interest in allocating more resources to China, leveraging lower valuations and government stimulus measures to support economic recovery.

As U.S. investors and businesses scale down their presence in China due to multifaceted risks, Chinese funds are diversifying their investment base, seeking alternatives to reduce dependence on U.S. investments.

This quest for fresh capital has the potential to impact Asia's hedge fund landscape, given that Chinese firms currently represent over half of the market, potentially prompting shifts in focus for brokers and ancillary firms towards providing Middle East-focused services.

Effie Vasilopoulos, co-Leader of law firm Sidley Austin's Asia-Pacific investment funds group, highlighted a shift in capital raising dynamics. "In the past perhaps the holy grail of capital raising was the U.S. But if the U.S. investor leaves, there is a real focus on replacing that with other capital that is de-risked to this U.S.-Sino tension. So that dynamic is leading many of our clients to the Middle East."

Although some of the fund managers visiting the Middle East remained anonymous, they expressed a positive sentiment towards China among Middle East investors, with some sovereign wealth funds showing a preference for Chinese investments and discussing strategies on how to engage with the Chinese market.

Summer Zhen / Reuters

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