PIMCO and Blackstone see Gulf financing needs shift toward private capital

Abeer Abu Omar asks whether Gulf sovereign funds' increasing investment at home represents a geopolitical recalibration. Farhad Karim of Blackstone says he sees it primarily as a response to investment opportunities and the region's need for capital, rather than a retreat from investing globally.

Karim says Blackstone deployed more capital in the region in the preceding 12 months than it had before. He identifies data infrastructure, logistics, the experience economy and physical infrastructure as areas of interest. In his view, local sovereign funds and international investors can both participate where projects offer appropriate returns.

Asked how PIMCO's approach has changed during recent geopolitical disruption, Christian Stracke says the firm has led private financings for regional governments and government-related borrowers. He describes the transactions as partnerships designed in part to reinforce liquidity while investment needs remain high.

Stracke says direct financing can be useful when a borrower finds a traditional roadshow difficult: PIMCO may lend alone or alongside a small group. He describes the change as one of structure and execution rather than a retreat from the region, where he says the firm has lent for decades.

Abu Omar asks whether Gulf investment in AI and data-center infrastructure will continue, citing Blackstone's deal with Saudi Arabia's Humain. Karim expects it to grow and argues that demand for computing power will rise rapidly even though individual technologies will have winners and losers.

Karim expects greater regulatory scrutiny of US data centers after the midterms, which he regards as misplaced, although he thinks some communities will continue to seek investment. He says Blackstone's own use of AI, measured in tokens, increased 38-fold over the prior year, an example he offers of demand still being at an early stage.

Karim distinguishes what he sees as broad regulatory obstacles in Europe from more local US debates over data centers. He says AI's winners and losers will not be confined to technology companies: firms in ordinary industries will also need to adapt their operations to new tools.

As an illustration of possible benefits, Karim imagines an entrepreneur starting a company with fewer resources. He also recounts Microsoft CEO Satya Nadella's example of a farmer in India gaining access to agricultural knowledge in a language the farmer understands. Karim sees these as potential ways AI can expand access to expertise.

The discussion returns to Gulf risk and capital flows. Stracke says the region remains a source of investment abroad but also has substantial capital needs at home. He expects international private capital, in addition to regional bank lending, to play a role in financing infrastructure and development.

Stracke points to potential equity and private lending deals, including loans for individual developments and a nascent securitization market. He says this extends the opportunity beyond the sovereign and government-related lending that has been a mainstay for global investors, while regional wealth continues to seek diversification overseas.

Asked whether private credit's problems are structural or cyclical, Stracke says both. He describes lending to highly leveraged, sponsor-owned companies as more challenging after interest rates rose, and says he expects the Federal Reserve to keep raising rates. He says returns on existing direct-lending funds have declined, although results differ across managers.

Stracke distinguishes that narrow segment from private credit more broadly. He identifies residential mortgages and consumer lending in several developed markets, as well as digital infrastructure, aviation, transport and real-estate finance. He expects private credit to help fund the region's large planned capital expenditure.

Abu Omar asks whether expanding access to private markets creates wealth or transfers institutional risks to a wider audience. Karim says volatility is a recurring feature of markets and argues that the change is about access. He says institutional investors have long held substantial private-market allocations, while individual investors have had much less exposure.

Karim says Blackstone's institutional capital continues to grow even as its retail channel grows faster, so he does not regard individual access as replacing institutions or simply redistributing risk. He argues that people should be able to invest in parts of the economy that remain privately owned.

On family offices, Stracke describes a need to professionalize the management of entrepreneurial wealth and decide how much to allocate among private strategies, equities and fixed income. He says changes in relative value have made fixed income more relevant, and expects family wealth to be recycled into new growth investment.

Karim says sophisticated family offices can resemble institutions: both manage capital for beneficiaries and often for later generations. He sees an opportunity to diversify wealth created in one sector, such as property, technology or commodities, and notes that some family offices also have philanthropic goals.

Asked whether diversification is more important now, Karim says it is a basic principle made particularly relevant by volatility and concentrated wealth. For an investor whose fortune is tied to one business or sector, he regards spreading exposure as important to intergenerational planning.

Looking for the next opportunity cycle, Stracke expects digital infrastructure to remain a major destination for capital, although he thinks the pace of growth in lending to it will slow. He expects capital expenditure to broaden into defense technology and infrastructure, funded by both governments and private investors.

Stracke also points to supply-chain changes following the pandemic and tariffs, with companies seeking to move or diversify production. He expects those shifts to require capital. Further ahead, he sees robotics and other AI applications creating additional investment needs and potential ways to diversify portfolios concentrated in large technology companies.

Karim adds physical infrastructure and logistics to that list, expecting demand for faster delivery to require investment. He also sees opportunity in experiences such as sports, concerts, hospitality and travel as the economy changes. These are his expectations about future demand rather than completed outcomes.

Karim says the industry also needs to explain its products more clearly to individuals, family offices and institutions. In his view, transparency and education are part of making investment opportunities understandable, rather than assuming that potential investors already know how they work.

Asked directly whether war has changed regional allocations, Stracke says it has highlighted the need to diversify sources of capital beyond governments and established institutions. Building those channels will be challenging, he says, but could create opportunities for the region and international investors.

Stracke hopes the region is not permanently defined by war and says the experience of conflict could focus attention on a resolution. Karim says the conflict has demonstrated resilience in regional institutions and leadership, pointing to development and infrastructure work continuing despite disruption.