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By Mike Caggeso
Saudi Arabia, the world's biggest oil exporter, is considering joining its Middle East peers by setting up a sovereign wealth fund (SWF) with an initial investment of about $6 billion, Mohammad al-Jasser, vice governor of Saudi Arabia's central bank, said.
The vice governor didn't reveal many specifics of the plan, but he told Bloomberg that the relatively low starting amount is designed to avoid political backlash and fear from the country's many alliances – from Western oil consumers such as the United States to its oil-producing neighbors that already wield sizable SWFs of their own.
"There's too much populist bias now against emerging market sovereign wealth funds," Al-Jassar said.
However, this façade of diplomacy veils the fact that the Saudi Arabian royal family controls a good portion of many of the country's largest companies. And those companies – like many around the world – diversify their equity reserves by buying international stocks, bonds, ETFs, etc.
The best example is Saudi Basic Industries Corp. – the country's largest public company – which is 70% owned by the government. In May, the "company" bought the plastics' division of General Electric Co. (GE) for $11.6 billion.
That wasn't the only big SWF purchase last year. Middle East SWFs generated a steady stream of news coverage last year, as the government-controlled bankrolls grabbed sizable stakes in blue-chip companies around the world:
- Nov. 27: Abu Dhabi pours $7.5 billion into ailing Citigroup Inc. (C).
- Nov. 26: Dubai International Capital, a state-owned holding company, acquired an undisclosed stake in Japan's electronics and media juggernaut Sony Corp. (SNE).
- Nov. 16: Abu Dhabi invested $622 million (an 8.1% stake) in California-based microchip-maker Advanced Micro Devices Inc. (AMD).
- Oct. 20: Dubai International Capital agreed to invest $1.26 billion in the initial public offering of hedge fund Och-Ziff Capital Management Group LLC (OZM).
- Aug. 22: Dubai World, another investment arm of the state, plunked down $5.1 billion for a 9.5% stake in MGM Mirage (MGM).
- Aug. 14: Istithmar, part of Dubai World, was cleared to buy Barneys New York Inc. for $942.3 million from Jones Apparel Group Inc. (JNY).
Kuwait Signals Interest in European Banks
The next big-name fund to join the fray is the $250 billion Kuwait Investment Authority, the oldest SWF in the world, which said it would like to buy stakes in capital-starved European banks currently beat down by mortgage losses, Bloomberg reported.
"We are interested if we are invited" to invest, Bader al-Saad, the fund's diplomatic managing director, told reporters at the World Economic Forum in Davos, Switzerland, remaining just as mindful of public relations as Saudi Arabia's al-Jasser.
Kuwait's SWF has already invested in U.S. banks with a $3 billion investment in Citigroup and a $2 billion investment in Merrill Lynch & Co. (MER).
Analysts aren't expecting a slow down of SWF spending sprees in 2008. On top of more spending from Middle Eastern SWFs, India is taking steps to launch its own SWF. And China just finished taking applications from more than 100 drooling money managers to help invest the country's $200 billion SWF, China Investment Corp.
And let's not forget a wild card, Norway, whose government controls the second-largest SWF in the world, the $350 billion Government Pension Fund of Norway. However, this company may be the exception, as it refuses to invest in companies such as The Boeing Co. (BA) and Wal-Mart Stores, Inc. (WMT) that violate its ethical standards of nuclear weapons production and human rights, respectively.
News and Related Story Links:
- Money Morning:
Sovereign Wealth Funds Biting into the World's Biggest Companies…Transparency and Motives in Question
- Money Morning:
Investment Advisors Angle for Chance to Manage China's $200 Billion Sovereign Wealth Fund
Government Pension Fund of Norway