Dubai: UAE-based sovereign wealth funds (SWFs) are seeing increasing opportunities in African countries and some of the leading emerging markets of the world demonstrating a shift in the focus of their asset allocations.

“[The] UAE is home to one of the largest SWFs in the world and recently has played a significant role in establishing relations with African countries, resulting in commitments worth $19 billion (Dh69.7 billion) from UAE investors, across 17 infrastructure projects,” said Ashish Dave, KPMG Partner and head of private equity and SWFs.

This paves the way for future investments as economic linkages between the UAE and African countries continue to strengthen, in part driven by the investment strategies of local SWFs.

Interestingly, SWFs in the Middle East are viewing the West with caution and as a result have invested less internationally than they have done in the past while redirecting a portion of their funds from international investments back into the Middle East. This could be due to international forces, such as the Eurozone debt crisis or local factors such as the Arab Spring.

African equity markets have demonstrated strong performance over the past 12 months, significantly outperforming the MSCI Emerging Markets Index. SWFs are increasingly viewing economic fundamentals underpinning the recent performance of African markets as potential drivers of long-term sustainable growth.

“From our experience, SWFs have historically been keen to build strategic asset allocations rather than investing according to short-term tactical views,” Vikas Papriwal, KPMG Partner and Head of Markets.

“This is likely to result in SWFs focusing their investment efforts in Africa towards alternative assets and increasing their appetite for private equity, real estate, agriculture and infrastructure investments.”

According to KPMG, western governments and organisations looking for capital from the Middle East will need to adapt and demonstrate a deep understanding of what is driving the thinking of SWFs in the region, and be dedicated to making a long-term commitment to building relationships that add value to their investment policy.

Global SWFs currently control an aggregate of approximately $5 trillion (Dh18.36 billion) in assets under management (AUM). Of this amount, the GCC SWFs, most notably ADIA, currently the world’s third-largest sovereign wealth fund, which is hard on the heels of the Norway Government Pension Fund and China Investment Corporation.

The top three wealth funds account for approximately 40 per cent of assets under management held by SWFs across the globe.