While Western capitals continue to be concerned over the strategic and national security issues related to investments by sovereign wealth funds, the Middle East seems to be leading the way in acquiring Western financial assets.
The latest addition to the growing list of Middle Eastern sovereign wealth funds is Saudi Arabia, which plans to establish a fund that is expected to exceed Abu Dhabi’s $900 billion (Dh3.3bn) and become the largest sovereign fund in the world. This means that sovereign funds from the UAE and Saudi Arabia combined would account for about $2 trillion (Dh7.3bn). Globally, sovereign funds are estimated to have assets of about $3trn (Dh11bn), according to Morgan Stanley research data released this month.
The news from Riyadh came as Singapore’s Temasek said it is in “preliminary” talks with Merrill Lynch concerning a multi-billion dollar stake in the investment bank.
The deal is expected to be close to $5bn (D18.35bn).
The new fund from Saudi Arabia comes in the wake of significant investments by wealth funds based in the UAE and Qatar this year.
The Saudi fund will be a formidable rival for other government-owned investment funds in the Middle East and Asia, which together comprise the biggest investors in Western financial assets since January 2006, according to Morgan Stanley research. Together, sovereign funds from the GCC nations make up 52 per cent of the total investments in Western financials. The same component is 36 per cent for the global financials.
Among Western financials, Dubai-based funds lead the pack with 26 per cent of investments, followed by Abu Dhabi-based wealth funds, which constitute 20 per cent of total investments since January 2006.
The rest of the GCC accounts for the remaining seven per cent of the Middle East component. Dubai-based funds include the Dubai Financial Group, Istithmar, Dubai Investment Group, Dubai International Capital and Borse Dubai. The Abu Dhabi cluster includes Mubadala, Abu Dhabi Investment Authority (Adia) and Abu Dhabi Investment Company. Earlier this month, Adia invested $7.5bn (Dh27.5bn) for 4.9 per cent stake in Citigroup after the bank announced massive write-downs. The investment makes it the single largest shareholder, surpassing the 3.6 per cent stake held by Saudi Prince Alwaleed bin Talal, previously Citi’s largest shareholder.
“These sovereign funds from the region will change the landscape of global investment because they will target bonds as well as equity.
What we have seen from Dubai and the region in 2007 is something we’ll see more of in,” said Nasser Saidi, chief economist at Dubai International Financial Centre.
According to a report published in Financial Times yesterday, Asian central banks hold foreign exchange reserves of about $3.8trn (Dh13.9trn) and some of it is being hived off into actively managed funds. As opposed to Singapore and China, which have foreign exchange reserves as the source of their funds, the UAE and Middle East countries have benefited from record oil prices in the growth of their surpluses.