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By William Patalon III
Money Morning/The Money Map Report
Kuwait's state-run investment fund is reportedly looking to invest in the upcoming Visa Inc. (V) initial public stock offering, a move that would boost the stake of government-controlled investment funds in the U.S. financial sector.
The $18.8 billion IPO – currently scheduled for next Thursday (March 20) – would be the biggest in U.S. history.
Kuwait's investment fund, the Kuwait Investment Authority, or KIA, was founded in 1953, making it one of the oldest sovereign funds in the Middle East, if not the world. It manages an estimated $225 billion worth of assets and, because of falling prices, has become increasingly interested in making investments in European and U.S. financial-services and real-estate companies, KIA Managing Director Bader al-Saad told Reuters last month.
KIA's interest in Visa was first reported in Kuwait's local al-Qabas newspaper, and that report was subsequently picked up by Reuters.
Growing Global Presence
Sovereign wealth funds currently control an estimated $3 trillion in cash and other assets. That's already believed to be more than the $1.5 trillion to $2 trillion held by worldwide hedge funds [though some sources put the hedge-fund estimate as high as $5 trillion].
According to the International Monetary Fund (IMF), the state-run funds could control $12 trillion by 2015. Ultimately, says Money Morning Investment Director Keith Fitz-Gerald, the total could actually reach $20 trillion by the middle of the next decade.
The growth rate is certainly accelerating. The U.S. Treasury says that 20 new funds have been created since 2000 – more than half of them since 2005 – bringing the total number of funds to nearly 40.
In recent months, these massive state-run investment funds have injected more than $70 billion into struggling commercial banks, brokerages and investment-banking institutions – most of them in the West. Most recently, the funds have provided bailout capital to such heavyweights as Citigroup Inc. (C), Merrill Lynch & Co. Inc. (MER), UBS AG (UBS), and Morgan Stanley (MS).
The Kuwait fund invested in both the Citi and Merrill deals. The balance sheets of both firms have been eviscerated by the subprime-spawned credit crisis.
Veterans of IPO Deals
If the KIA follows through and invests in the Visa deal, it won't be the first time that a sovereign fund has invested in a U.S. IPO. Last May, China's $200 billion China Investment Corp. (CIC) opted to make the U.S. hedge fund specialist The Blackstone Group LP (BX) its first investment. Blackstone's shares are down about 46% since the IPO, leaving CIC with a paper loss of $1.37 billion as of the stock market's close yesterday (Tuesday).
China's loss was actually even steeper on Monday. Blackstone's shares rallied $1.09 each, or 7.27%, to close at $16.07 yesterday. On Monday, Blackstone announced that its fourth-quarter profits had plunged 89% because of lower takeover fees.
But the Visa IPO is attractive because the San Francisco-based firm controls the world's largest credit-card network. And KIA wants to extend its reach into the financial-services sector, where it already has a substantial foothold.
In January, the Kuwaiti fund agreed to invest $5 billion in Merrill and Citigroup. Back in 2006, the KIA invested more than $700 million in the Industrial & Commercial Bank of China, making it the bank's No. 1 investor at the time.
The ICBC IPO – worth about $22 billion when the over-allotment provisions were fulfilled – was the world's biggest-ever IPO at the time.
Kuwait's sovereign fund isn't the only overseas financial stalwart circling the Visa IPO, Reuters reported.
Goldman Sachs Group Inc. (GS) – one of the deal underwriters – last week arranged a meeting with potential Dubai investors, seeking to tap into the Persian Gulf oil money that continues to pour into sovereign wealth funds because of record oil profits. And China Merchants Bank Co. Ltd., China's top credit card issuer, expressed an interest in making an investment in the Visa IPO.
News and Related Story Notes:
Kuwait's Sovereign Fund Studies Visa IPO.
Extra Credit for Visa's IPO.
Money Morning News Analysis:
Despite its Billion-Dollar Loss in Blackstone Deal, China SWF CIC Sees the Bigger Picture.
Money Morning Economic Outlook Series:
Outlook 2008: Three Ways to Profit From Sovereign Wealth Funds – the "Next Wall Street"
Money Morning News:
Blackstone Misses Estimates, Profit Dives 89%
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.