There's a trend that has presented a sobering thought to many a corporate boardroom across the globe in the last few years. Wealthy governments and rulers from the Arabian Gulf are taking advantage of their burgeoning petrodollars to invest in corporate icons of the West. Through the creation of state-owned sovereign wealth funds (SWFs), billions are being spent on a shopping spree that has seen stakes in the London Stock Exchange, global private investment firm Carlyle Group, Italian automaker Ferrari and Sony fall into the hands of some of the Gulf’s most influential powers.
Not all attempted buyouts have met with success, with some of the failed bids adding fuel to the media fire that continues to keep the subject of SWFs on the front burner. Among the most high profile, was Qatar's offer of more than 20 billion USD for a stake in British supermarket chain Sainsbury’s which fell through in late 2007.
SWFs are not a new phenomenon, with Kuwait's Investment Authority being the first to launch in 1953. But in the last few years, they have risen in prominence as surging oil prices and trade surpluses have given governments from the Gulf to Asia a growing pool of excess money. Just under a third of all global sovereign wealth investments stem from the Middle East region with the overwhelming majority of this money destined for businesses in the EU and US.
The daddy of all SWFs belongs to Abu Dhabi, with an estimated 875 billion USD in capital (although it has never disclosed the amount) making it the largest in the world. In November last year it paid 7.5 billion USD for a 4.9 per cent stake in Citigroup – the largest US bank – followed shortly after by Kuwait Investment Authority's three billion USD investment in the group. As the US subprime crisis continues to send its negative shockwaves through financial circles, high-profile giants of the banking world such as Citigroup are finding themselves in need of the immediate cash rescue that SWFs can bring. Citigroup registered its highest net losses in the fourth quarter of 2007 at 9.8 billion USD, mainly attributed to the knock-on effect of the subprime crisis. Merrill Lynch, Credit Suisse and Standard Chartered have also had stakes snapped up by Gulf SWFs.
This relatively sudden flurry of SWF activity has raised eyebrows at the government level from the US to Europe, based on fear over the secrecy and lack of transparency that most SWFs operate under. There is also the sensitive subject of whether state-funded investments could be wielded as a political tool to target strategic or national interests. China and Russia are regarded with the greatest suspicion on this front. At the World Economic Forum in Davos this year, SWFs were one of the hot subjects on the table, with calls from the west for SWFs to offer more transparency and to operate according to a code of conduct, such as one being drawn up by the IMF.
However, after decades of the developed world wielding economic power over the developing world, the tables are finally turning with the current climate of cash-strapped businesses in the EU and US placing the power balance firmly in the hands of SWFs from emerging markets. Convincing them to comply with the demands of western countries will rely on good will more than anything else. Many of the SWFs have voiced their frustration over the growing negative spotlight on their activities. They are not alone. The sentiment that has been echoed in some Western financial circles based on a fear that SWFs may start looking to place their cash elsewhere – a move that the cash-strapped US can certainly do without.
Still, there are signs that SWFs are about to play ball. In March Abu Dhabi joined Singapore in taking a leading step in committing themselves to greater disclosure of their operations and stronger internal controls in an agreement signed with the US Treasury, a move that the US hopes others will follow. Saudi Arabia has taken note of the controversial waters surrounding SWFs and is starting out small and slowly with its first six billion USD fund announced in March.
Estimates project the current 2.2 trillion USD that SWFs have to play with to grow to more than 13.4 trillion USD over the next ten years. As the subprime crisis continues to wreak havoc among financial institutions and as financially needy businesses tune in to the appeal of SWFs with money to spend, Europe and the US are waking up to the prospect of multiple Gulf invasions on their own territory for a long time to come.
The Who's Who of SWFs (in order of size)
Abu Dhabi Investment Authority (ADIA)
Location Abi Dhabi, UAE
Launched 1976
Estimated Size 875 billion USD
Background Established in 1977 by the late Sheikh Zayed bin Sultan Al Nahyan, ADIA is the investment arm of Abu Dhabi, the largest oil producer of oil in the UAE. It employs about 1,400 people and has investments in banking and industrial businesses throughout the Middle East. It was modelled on Singapore's national investment fund and is the largest sovereign wealth fund in the world. Chaired by Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE and ruler of Abu Dhabi, ADIA has never disclosed its size.
Shareholdings Citigroup, US home builders Toll Brothers, investment bank EFG Hermes, Banque de Tunisie et des Emirats, US private equity group Apollo Management.
Kuwait Investment Authority
Location Kuwait City, Kuwait
Launched 1953
Estimated Size 225 billion USD
Background The Kuwaiti Investment Authority comprises the General Reserve Fund (which manages all state revenues) as well as the Reserve Fund for Future Generations which receives 10 per cent of all state revenues annually. The latter is overseen by the Kuwait Investment Office located in London. During the Iraq invasion of Kuwait in 1990, the KIO acted as the country’s central bank.
Shareholdings Citigroup, Merrill Lynch, Daimler AG, British Petroleum, Industrial and Commercial Bank of China, Zain.
Qatar Investment Authority
Location Doha, Qatar
Launched 2005
Estimated Size 60 billion USD
Background In its short history, Qatar Investment Authority has found itself quickly in the spotlight after pursuing high-profile targets such as Sainsbury’s. It may be smaller than ADIA but its wealth is rising quickly thanks to revenues from the country’s gas reserves, which are the third largest in the world. Headed by CEO Sheikh Hamad bin Jassim bin Jaber Al Thani, Prime Minister of Qatar, the Authority is hotly pursuing a diverse portfolio of investments with an eye on high returns.
Shareholdings London Stock Exchange, Credit Suisse, Chelsea Barracks, French publisher Lagardere SCA, Lebanon's BLC Bank SAL, Jordan's Housing Bank for Trade & Finance, Raffles Medical Group.
Libyan Investment Authority
Location Tripoli, Libya
Launched 2006
Estimated Size 40 billions USD to 50 billion USD
Background LIA is a holding company that oversees and manages government investment funds in various areas including agriculture, real estate, infrastructure, oil and gas and in shares and bonds. Still in its early stages, LIA is expected to begin with a portfolio of investments managed through western banks and institutions before branching out to invest in real estate worldwide and, eventually, private equity transactions. In August of 2007, LIA agreed to establish a joint investment fund of two billion USD with the QIA to invest in Libya, Qatar and western markets.
Shareholdings Oilinvest, Libyan Foreign Investment Company.
Mubadala Development Co
Location Abu Dhabi, UAE
Launched 2002
Estimated Size 12 billion USD
Background Mubadala is a Public Joint Stock Company that is a wholly-owned investment vehicle of the Government of the Emirate of Abu Dhabi. Although often included in the sovereign wealth funds group, Mubadala considers itself a sovereign investor. With the aim of seeking strong financial returns while attempting to diversify the economy, its investments are wide-ranging but have a tendency to favour high technology and aerospace firms.
Shareholdings Dolphin Energy, Aldar Properties, Carlyle Group, chipmaker Advanced Micro Devices, Swiss aircraft and engine services provider SR Technics, Ferrari, Piaggio Aero Industries, MGM.
Dubai International Capital
Location Dubai, UAE
Launched 2004
Estimated Size 12 billion USD
Background Sometimes included with other sovereign wealth funds, DIC is actually a private investment vehicle under the umbrella of Dubai Holding, owned by the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum. It has pursued a policy of buying into household name companies. In 2005, it bought Tussauds Group but went on to sell off 80 per cent of it. It is also famous for its failed bid for Liverpool Football Club in 2006, losing out to American investors.
Shareholdings Sony, HSBC, Travelodge, DaimlerChrysler, Och-Ziff, aerospace defence group EADS.
Istithmar
Location Dubai, UAE
Launched 2003
Estimated Size 8 billion USD
Background Istithmar only employs 35 staff and is wholly owned by the Gulf State's rulers. It operates in a range of sectors including financial services, real estate and retail. So far it has created joint-venture partnerships with four international equity players from Germany, the UK, the US and Singapore. Istithmar is part of holding company Dubai World, founded by the emirate’s ruler, HYPERLINK "http://www.financialnews-us.com/?page=ushome&keywordsearch=Sheikh+Mohammed+Bin+Rashid+Al+Maktoum" \o "http://www.financialnews-us.com/?page=ushome&keywordsearch=Sheikh+Mohammed+Bin+Rashid+Al+Maktoum" Sheikh Mohammed Bin Rashid Al Maktoum.
Shareholdings Standard Chartered, Barney's department stores, Indian airline Spicejet, Time Warner, cruise liner QE2, MGM Mirage, the Knickerbocker Hotel in Times Square.
State General Reserve Fund
Location Muscat, Oman
Launched 1980
Estimated Size 2 billion USD to 5 billion USD
Background Owned by the Sultanate of Oman and managed by the Ministry of Finance, little is known about this sovereign wealth fund with even the name of its ceo remaining undisclosed. Its investments to date have been conservative and mainly focused on real estate.
Shareholdings Wave Seafront Resort Oman, London development Heron Tower.
Mumtalakat
Location Manama, Bahrain
Launched 2006
Estimated Size 1 billion USD
Background Established by royal decree as the strategic holding and investment arm of the Bahraini government, Mumtalakt has a portfolio of 33 local and international companies across a diverse range of sectors including aluminium production, real estate, banking and financial services, transport and telecommunications. Its main focus remains investments in Bahrain.
Shareholdings McLaren Group Limited.
