In This Article
30-Second Summary
Headline Link: ‘Duke of York Slams Protectionism Towards Sovereign Wealth Funds’
Video: ‘Corporate Advisory Insight: Sovereign Wealth Funds’
Background: Recent acquisitions by Gulf SWFs; internal economic developments
Opinion & Analysis: SWFs becoming clearer under scrutiny
Reference: Brief economic history of the UAE; investing guide
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Prince Andrew, Duke of York
Prince Andrew Defends Sovereign Wealth Funds
May 23, 2008 09:32 AM
by
Anne Szustek
An investment vehicle often used by the oil states of the Gulf draws criticism in Europe and America for a relative lack of transparency.
30-Second Summary
Speaking on the sidelines at the World Economic Forum this week, Prince Andrew, the U.K. special representative for international trade and investment, said “I do not believe there is a problem with the way that SWFs are managed or run.”
SWFs are investment tools used by governments to preserve investment funds. They have been in use since the 1950s as a way to hedge national coffers against economic downturns.
Yet with the steep rise in oil prices over the past 18 months, SWFs have come under fire for what some see as opacity in investments by petrodollar economies. According to the International Monetary Fund, the world’s largest users of SWFs are “the United Arab Emirates, Norway, Saudi Arabia, China, Kuwait and Russia”—all countries with significant petroleum deposits.
The total global value of SWFs currently stands at some $2–3 trillion, but this number is expected to rise to some $6 trillion to $10 trillion over the next five years.
Oil economies, particularly those in the oil-based economies of the Gulf, eager to diversify their investments, have been buying up assets of Western companies. The two richest emirates of the UAE—Abu Dhabi and Dubai—have some $5 billion a week to spend on foreign investments. The world’s largest SWF, the Abu Dhabi Investment Authority, bought a $7.5 billion stake in Citibank last November.
Some Western companies welcome the injections of capital, especially during the current credit crunch. But some fear political motives may be an underlying factor, and are backing protectionist measures.
SWFs are investment tools used by governments to preserve investment funds. They have been in use since the 1950s as a way to hedge national coffers against economic downturns.
Yet with the steep rise in oil prices over the past 18 months, SWFs have come under fire for what some see as opacity in investments by petrodollar economies. According to the International Monetary Fund, the world’s largest users of SWFs are “the United Arab Emirates, Norway, Saudi Arabia, China, Kuwait and Russia”—all countries with significant petroleum deposits.
The total global value of SWFs currently stands at some $2–3 trillion, but this number is expected to rise to some $6 trillion to $10 trillion over the next five years.
Oil economies, particularly those in the oil-based economies of the Gulf, eager to diversify their investments, have been buying up assets of Western companies. The two richest emirates of the UAE—Abu Dhabi and Dubai—have some $5 billion a week to spend on foreign investments. The world’s largest SWF, the Abu Dhabi Investment Authority, bought a $7.5 billion stake in Citibank last November.
Some Western companies welcome the injections of capital, especially during the current credit crunch. But some fear political motives may be an underlying factor, and are backing protectionist measures.
Headline Link: ‘Duke of York Slams Protectionism Towards Sovereign Wealth Funds’
Sovereign wealth funds came under attack in 2006 when DP World, Dubai’s state-owned shipping container company, had to sell the U.S. port terminals it acquired during a takeover of British port company P&O. Members of Congress thought the UAE’s takeover posed a threat to American national security. Prince Andrew, Duke of York, called Congress’s reaction “a storm in a teacup that should never have taken place.”
Source: Arabian Business
Video: ‘Corporate Advisory Insight: Sovereign Wealth Funds’
Glenn Curtis, director of the sovereign wealth funds research group for Thomson Financial, describes sovereign wealth funds as “foreign government investment vehicles,” many of which are “flush with petrodollars, and have made headlines recently because of their cash hordes. They are now beginning to diversify out of low yielding bonds and into other assets for greater returns.”
Source: YouTube
Background: Recent acquisitions by Gulf SWFs; internal economic developments
The state-run Abu Dhabi Investment Authority bought a $7.5 billion stake in Citibank in a sovereign fund–backed deal last November. At the time, Abu Dhabi and Dubai, the two richest of the UAE’s seven emirates, had an estimated $5 billion to spend per week on financial holdings thanks to oil and gas revenues, according to Edward Morse, the chief energy economist at investment firm Lehman Brothers.
Source: findingDulcinea
Dubai International Capital, a sovereign investment fund owned by Sheikh Mohamed bin Rashid Al-Maktoum, the ruler of Dubai, bought a 1 percent stake in Japanese technology manufacturer Sony on Nov. 26, 2007.
Source: findingDulcinea
The UAE has its currency pegged to the flagging U.S. dollar. But official inflation rates in excess of 10 percent during the first quarter of this year caused the Gulf nation to reconsider that arrangement.
Source: findingDulcinea
The khaleeji is a regional currency scheduled to be instituted in 2010 in the countries of the Gulf Cooperation Council: Kuwait, Oman, the UAE, Saudi Arabia, Bahrain and Qatar. Oman announced in 2006 that it will abstain from joining. Kuwait’s move to remove its own currency’s peg from the dollar is a technical setback for the implementation, argues UAE University’s Emilie Rutledge.
Source: Gulf News
Opinion & Analysis: SWFs becoming clearer under scrutiny
Dubai floated its state-owned shipping container company DP World on the Dubai International Financial Exchange in late 2007 in a bid to raise $4.2 billion in capital, as well as deflect criticism over what has been viewed as a lack of transparency in funds. Online publication Ethical Corporation quotes industry expert Ollie Cornock as believing “that DP World’s plan to sell up to 20 percent of its shares on the DIFX represents a general shift towards accountability in the region.”
Source: Ethical Corporation
The IMF recognizes the trepidation felt by SWF recipient governments regarding “the impact of SWFs—reflecting their size and investment strategies—and of the home countries that have been worried about the risk of rising protectionist sentiment.”
Source: IMF
Arabian Business predicted in November that the Abu Dhabi Investment Authority’s deal with Citibank could trigger a wave of sudden buy-ups on Wall Street from the oil economies of the Gulf. The current economic climate in the United States minimizes any red tape and scrutiny that external investors could otherwise face. Istithmar, Dubai’s state-owned private equity firm, acquired U.S. luxury retailer Barneys New York in late 2007 and said in September that it was considering buying stakes in two unnamed U.S. companies badly hit by the sub-prime mortgage crisis.
Source: Arabian Business
Reference: Brief economic history of the UAE; investing guide
The United Arab Emirates (UAE) is a federation of seven independent sheikdoms. Each emirate is semiautonomous in civil and investment law, but they function together for purposes of foreign policy and defense. Oil was first discovered in the area in 1958, and forms the base of the country’s enormous wealth.
Source: National Geographic
Before oil was discovered in the UAE, the local economy relied primarily on pearl diving and fishing. When it started to export oil, this Gulf nation’s coffers and society were rapidly transformed. In the past decade the emirates, particularly Abu Dhabi and Dubai, have divested their petrodollar earnings into overseas financial holdings.
Source: The BBC
FindingDulcinea’s Web Guide to Investing compiles the best sites to stay abreast of market developments, including the most profitable investment vehicles.
Source: findingDulcinea
© 2010 Dulcinea Media, Inc.
