Investing in Heritage Assets in the New Geopolitical Reality

In 2015, I published two papers arguing that sovereign wealth funds (SWFs) in at least two nations on the Arabian Peninsula – UAE and Qatar – should consider developing a dedicated investment programme focusing on art and heritage assets. I further suggested that to make such a programme more effective, it would make sense for regional SWFs to collaborate with their peers in ‘heritage-rich, but savings-poor’ nations, such as Italy, France, and Russia. I referred to this potential collaboration as ‘cross-border cultural arbitrage’.[i]

In my papers, I drew inspiration from the bold and visionary project of Louvre Abu Dhabi, but suggested introducing a new twist: instead of thinking in terms of allocating and spending a budget, think in terms of long-term portfolio allocation, applying strictly commercial logic and investment discipline.

I argued that an allocation to art and heritage assets would make good sense from a portfolio diversification perspective, illustrating it with an actual case study from the past.[ii] I also argued that a properly designed and structured heritage investment programme could have a lasting positive impact on the local economy, as well as a global cultural impact.

Almost ten years later, we find ourselves living in a different geopolitical reality. The world has fractured, disrupting global trade and investment flows, and creating new divisions and restrictions across multiple domains. But the concept which I suggested back in 2015 with respect to heritage asset investing by the Gulf countries arguably makes even more sense now. I make the following four arguments in support of this thesis:

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·?????? Enhanced role of the GCC nations as a geopolitically neutral platform

·?????? Demonstrated proof of concept as showcased by Abu Dhabi

·?????? Increasingly deep and diverse pools of local long-term capital

·?????? Opportunities to access and support heritage assets in China, Russia, Iran

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Role of GCC nations in the current global system

For some time now, the nations of the Gulf Cooperation Council (GCC) have been blessed with strong and wise leadership, who have designed and implemented ambitious long-term visions for their respective countries. They have stewarded, with prudence and care, their nations’ vast natural resource endowments by saving and investing excess commodity revenues to create deep pools of capital, but also, more recently, by investing in strategic sectors of the local economy, seeking to diversify away from the energy sector and to jump-start growth in high value added, knowledge-based sectors. Art and heritage assets became one of these, with Abu Dhabi and Qatar securing the first-mover advantage.

All of this is as true today as it was ten years ago, but the GCC countries now have an additional competitive advantage: their pragmatic approach to business, combined with genuine strategic autonomy, has created a remarkable and increasingly rare ability to reach across geopolitical divides, bringing together people and ideas from all over the world to create unique value propositions. Some of these countries are effectively transforming themselves into geopolitically neutral platforms, which can offer respite to a world increasingly starved of meaningful and mutually beneficial international cooperation.

This is particularly relevant to the world of art and heritage assets, where new geopolitical divisions and restrictions are impeding normal tourist flows and cultural exchanges between countries that are now geopolitical adversaries, effectively blocking access to timeless and priceless masterpieces on both sides, as well as straining funding for their maintenance and upkeep.

GCC countries can take advantage of this situation by strategically building out? sophisticated art and cultural infrastructures of their own, which, while being complementary to the existing global art and heritage ecosystem, would also have the ability to unblock access to museum-quality art and to secure reliable financing for heritage assets irrespective of their location.

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Demonstrated proof of concept

What ten years ago was still largely an untested concept has now been successfully completed, at least in part, with Abu Dhabi’s art-related projects showcasing that it is possible to create a whole new ecosystem of high-quality heritage assets where there was none previously. Louvre Abu Dhabi was inaugurated in November 2017, and by 2019, the last year before the pandemic, was reported to have attracted two million visitors, making it the most visited museum in the Arab world.[iii] Also, Guggenheim Abu Dhabi, after several delays, is now expected to be completed in 2025 and will become the largest of the Guggenheim museums.

In addition to building an impressive art and cultural infrastructure, the emirate’s approach to heritage assets appears to be evolving: in August 2024, ADQ – one of the local SWFs – acquired a significant minority stake in the world-renowned auction house Sotheby’s, stating that this purchase “reflects a strategic commitment in pursuing value accretive investment opportunities that contribute to the economic diversification of Abu Dhabi.”[iv] ?Designing and implementing a comprehensive investment-led approach to heritage assets would be a logical next step, which could allow the emirate to scale up this effort to a whole new level.

Also, in addition to Abu Dhabi and Qatar, Saudi Arabia has joined the club of potential sovereign investors in heritage and cultural assets: its Public Investment Fund (PIF) has exhibited tremendous appetite for new and impactful alternative asset classes, with one specific area of focus being Entertainment, Leisure and Sports. I believe it is only a matter of time before PIF starts taking a serious look at ambitious art and heritage investment initiatives within this category. But large SWFs, strategic and deep-pocketed as they may be, are not the only relevant players in this area. Which brings us to the next point – the diversity of the deep regional capital pools available for deployment.

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Diversity of capital pools

Apart from SWFs, during the last ten years the Gulf region has seen massive growth in the number and size of local family offices, including institutions which we shall refer to as ‘Royal Private Offices’ (RPOs) – investment entities entrusted with managing the private wealth of members of local royal families. But even more important than their numbers or size, it is the evolving nature and mode of operations of these institutions that make them even more relevant to our discussion than ten years ago.

While my previous articles focused solely on SWFs and the potential collaboration between them, a truly ambitious and large-scale heritage asset investment programme will have higher chances of success if it draws on diverse pools of capital, with different risk/return profiles, investment horizons, preferences, and constraints. Regional family offices and RPOs can bring with them unique and complementary skills and capabilities: they tend to be nimbler and faster in their decision making; they tend to have a higher risk tolerance; and they can be quicker to innovate and try out new things.

However, historically, there has been one big impediment to full-fledged collaboration and co-investment between these institutions and SWFs: a large and growing gap in their internal cultures and predilection for secrecy. While SWFs have come a long way in increasing transparency and becoming more publicly accountable for their investments, family offices are often reluctant to disclose information and, for the most part, continue to closely guard their privacy.

That being said, some of the more advanced private investors in the region are making efforts to close this gap. For example, the CEO of a prominent RPO in Abu Dhabi recently mentioned that greater cooperation between family offices and SWFs would be crucial in the future, making the case for increased disclosure and improved internal processes by leading family offices. He illustrated his point by describing the journey of his own fund, which under his leadership has reshaped its risk and disclosure frameworks, aligning its corporate and capital structures with international standards and best practice.[v]

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Opportunity to access and support art and heritage assets in China, Russia, and Iran

The geopolitical relations between these three countries and the West have clearly deteriorated during the last decade. With new divisions and restrictions across multiple domains, the world of art and culture has not been spared. Yet, one could arguably make the case that the nature of many art and cultural objects exhibited and preserved in the museums of these countries makes them part of the timeless and priceless heritage of all humankind. As such, they deserve to be seen and appreciated by all people, and they also deserve to be preserved and maintained by means of sufficient and reliable funding and support.

Since the GCC nations maintain stable working relations with all geopolitical parties, they can serve as both reliable financiers and trusted guarantors when it comes to accessing and supporting heritage assets in the three countries in question. For example, using a template similar to Louvre Abu Dhabi but applying an investment-driven approach, a consortium of SWFs, RPOs, and family offices could reach out to the big brand museums in China, Russia or Iran to develop mutually beneficial long-term art and heritage projects. If needed, they could have exploratory conversations with SWFs in each of these countries, since all three have such state-owned investment vehicles that speak the same language of finance and are open to collaboration.

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Conclusion

The GCC nations are uniquely positioned to serve as a neutral platform, bringing people and ideas together from across geopolitical divides to achieve impactful positive outcomes. They have at their disposal very deep capital pools, which also happen to be quite diverse, thus opening up opportunities for collaboration and co-investment.

With respect to art and heritage assets, there are now live and successful case studies, particularly in Abu Dhabi, that prove the viability of the concept. Arguably, this effort can be upscaled and taken to a whole new level by reframing it as a long-term impact investment proposition.

The current geopolitical constraints on ‘heritage-rich’ countries like China, Russia, and Iran suggest an opening for a sophisticated, long-term oriented, and well-resourced impact investor in the Gulf to create something new and truly unique – a world-class regional art and cultural ecosystem that would help secure humankind’s cultural heritage and make it accessible to all.

References

[i] ?“Sovereign Wealth Funds and Heritage Assets: a Cross-Border Cultural Arbitrage” in Sovereign Wealth Fund Annual Report 2014 by Sovereign Investment Lab, Paolo Baffi Centre for Applied Research on International Markets, Banking, Finance and Regulation, Università Commerciale Luigi Bocconi (2015)

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[ii] ?“Sovereign Wealth Funds and Heritage Assets: an Investor’s Perspective” in Sovereign Wealth Funds 2015 Report by ESADEgeo-Center for Global Economy and Geopolitics (2016)

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[iii] The Louvre Abu Dhabi

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[iv] ADQ to Acquire Minority Stake in Sotheby’s

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[v] Abu Dhabi royal family office reveals how it tapped institutional capital | Asset Owners | AsianInvestor