The rebirth of the SWF coverage banker

Investment banks' appetite to recruit staff to woo Gulf sovereign wealth funds largely faded alongside funds' appetite to make international acquisitions. Now, however, with advisory fees looking more likely, firms are seeking to increase their SWF coverage.

The likes of Morgan Stanley, JPMorgan, Deutsche Bank and Lehman Brothers all recruited bankers to liaise with sovereign wealth fund clients in the first half of 2008. It was easy to see why - the volume of acquisitions by SWFs more than doubled each year from 2003-2007, when it reached $75bn, according to figures from Thomson Reuters.

This tumbled to $39bn in 2009 when the financial crisis took hold, however, and investment banks' Middle East SWF coverage teams were seldom added to. Earlier this month, however, Citi recruited Zubaid Ahmad to lead its sovereign wealth fund coverage initiatives.

This hire is not an isolated incident within international investment banks in the Gulf region, suggests Bill Allum, managing director at headhunters Execuzen.

"Over the last year international investment banks have been recruiting relatively aggressively for their sovereign wealth fund coverage," he says. "These people must have very good relationships and be able to constantly liaise with key decision makers at the funds to sell the full range of products and services that the bank can offer."

Part of the reason for this could be a need to mount some competition against the small number of investment banks currently courting favour with SWFs.

According to Thomson Reuters figures, Morgan Stanley and Goldman Sachs have worked on 20 and 24 SWF M&A deals respectively, worth a combined $33.8bn, since 2005. Their nearest competitors - Citi and HSBC - have worked on 11 and nine, respectively. JPMorgan, Lazard, Bank of America Merrill Lynch and Credit Suisse all featured sporadically in the rankings.

"Working with sovereign wealth funds is a very political process, and they often rely on a small number of trusted advisors," says Peter Greaves, director of financial markets for executive search firm McArthur Murray. "It would therefore make sense for smaller players to attempt to steal a march on the dominant banks, and I'd expect to see competition for key talent in this area."

There are some reasons for optimism around advisory work for Gulf SWFs. For example, Bahrain's Mumtalakat has said it's looking to tap capital markets in a bid to diversify away from private equity and the Qatar Investment Authority has reportedly expressed an interest in buying part of the US government's stake in Citigroup.

Then there's the fact that Sultan bin Naser al-Suwaidi, the UAE's central bank chief, said at the MENASA economic conference this week that SWFs should "direct part of their investments to existing or newly-created companies in the region".

Still, as Financial News pointed out recently, the majority of SWFs transactions have so-far required little in the way of advice from investment banks, which has meant a pipeline of lucrative fees has been hard to come by.