“The UAE Is Poised To Become A 21st Century Switzerland”

By Eric Peters, CIO of One River Asset Management

“This is how to think about the UAE” said the wealthy investor, a banker turned money manager, entrepreneur, an expatriate who left London with his young family.

“They have built exceptional hardware, national infrastructure,” he said. “They enshrined English common law like Singapore and Hong Kong in various business-friendly jurisdictions like ADGM [here] and DIFC [here],” he said. “But hardware is worthless without software, IP, so they do whatever necessary to entice the world’s best people to move here and build their businesses.”

ADGM is Abu Dhabi’s financial center. Created in 2015, it now has over 4k registered business entities. Shopping, luxury living, hotels, schools, courts, regulators. Venture business hubs. Over 13k people work there. They plan to expand it 10x. DIFC is Dubai’s equivalent. Created 19yrs ago, 36k people work there. 700 tech companies. 27 of the world’s 29 systemically important financial institutions (SIFIs) have a presence. 60 hedge funds. Both cities are ranked the safest places to live in the world. Income and investment tax rates are zero.

“US start-up infrastructure was built over generations largely around our universities,” said Shan Aggarwal, head of venture investing for Coinbase. “It’s easy to take it for granted,” he continued, speaking with a venture investor at one of UAE’s SWFs. I listened. “The ecosystem you’re building here for early-stage ventures lays the foundation for tremendous innovation from the region and is superior to anything I’ve seen outside the US,” Shan said. “It’s remarkable, built with such conviction, intention, vertically integrated with the leaders in government, investors, sovereign wealth funds, business centers, entrepreneurial hubs, regulators, banks.”  

“We’ve made over 400 venture investments in the past 5yrs,” added Shan. “We tend to invest very early, in small size. Geographically, roughly 30% of our portfolio companies were founded outside of North America. 10-20 of our companies have moved to the UAE or considered establishing a presence in the past year. All organic. And they include some of the strongest teams,” Shan said. “We make investments in firms throughout the world,” replied the SWF venture investor.

“Many are strategic, very long-term horizon. They tend to be larger investments than yours. And the companies know that behind the initial capital we provide sits a monster.”    

“Upstairs is the mining company,” said the investor, focused on start-ups that build critical digital asset infrastructure, capitalizing on America’s reluctance to embrace blockchain technology. The UAE is hosting COP28 this December and building over 5 gigawatts of nuclear generating capacity. Like all renewable energy projects, there is no cost-effective way to store excess off-peak electricity production. So, the UAE now mines bitcoin with excess electricity, generating over $100mm per year to support investment in renewables. “We are operating at a fraction of our eventual output.”

UAE has the 8th largest oil reserves (100bln barrels). Venezuela has the most (304bln), followed by Saudi (298bln). The US has 69bln. When a nation with the 8th largest reserves builds over 5 gigawatts of nuclear generating capacity, it sends a powerful signal about the appetite for making long-term investments in oil and gas. The global energy transition has begun. If the world’s top producers slow investment in oil infrastructure, we could see a non-linear jump in the price of hydrocarbons, ironically, because we are weaning ourselves from them.

“Consider each emirate on its merits,” said the head of one of the nation’s leading family offices, mid-30s, Ivy league educated. We sat in a WeWork tower, an innovation hub he helped pioneer, soon-to-be 3,200 desks. “I’ll be happy no matter what you choose, after all, I’m a republican,” he said, content with a victory for UAE, no matter which of its seven emirates wins. “But I think you’ll find Abu Dhabi is the place where you’ll want your greatest presence,” he said, his team of investors and infrastructure consultants in a healthy competition with Dubai.

Anecdote:

I first traveled to the UAE in early 2001 to lead a technology project in Sharjah, one of seven emirates, working out of a windowless warehouse at the airport, a tax-free zone built to entice entrepreneurs. Back then, skyscrapers were rising, sporadically, abruptly, separated by vast tracts of desert, connected by wide empty highways. Fast forward 22 years and the UAE is transformed by ambition, execution. Poised to become a 21st century Switzerland. Open to all, aligned with none, a vital place where East meets West.

“You see right there?” asked a sovereign wealth fund investor this week, pointing north, through the tower’s window. “Two miles out there are 100 billion barrels of proven reserves, more than 200 years of supply,” he said, the Arabian Gulf spread before us, powder blue, sandy islands, cranes spinning. I had asked what inspired the UAE to act so aggressively, with such clear intention, to transform its economy. And why the UAE had made such remarkable progress, when Kuwait, by comparison, appeared somewhat frozen in time.

“In 20 years, perhaps 30, all that oil will be worth nothing,” he said. “The energy transition is now happening, and we have committed to Net Zero by 2050.” The UAE has roughly 1.5mm citizens, 8.5mm expatriates, $1.5trln in sovereign wealth fund investments, and is racing to diversify, reinvent. “Kuwait is somewhat of a sad story, the war with Iraq was devasting, they never fully recovered,” he said, touched by the travails of his northern neighbors, but more interested in focusing on his nation’s future.

“We have been making strategic investments across the globe for years, generating strong financial returns, bringing key technologies here, creating the space for young firms to grow, searching for synergies,” he said. “I am a chameleon, sitting here with you, dressed as such, and in Silicon Valley I’m in jeans, tee-shirt. New York, Taipei, all over the world,” he said. “Our strategy rapidly accelerated with US and China geopolitical strains, then came Covid, Ukraine. There’s now a flood of people, businesses, opportunities.”