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Friday 19 September 2008
Middle East sovereign funds steer clear of U.S. deals
As the entire U.S. investment banking industry seems to teeter on the brink of disaster, investors are asking: Where are the Middle East mega-funds, flush with oil money? More in comments...
Middle East sovereign funds steer clear of U.S. deals
By Heather Timmons and Keith Bradsher 18 September 2008
NEW DELHI: As the entire U.S. investment banking industry seems to teeter on the brink of disaster, investors are asking: Where are the Middle East mega-funds, flush with oil money?
After all, less than a year ago, these funds happily invested billions of dollars for minority stakes in some of the biggest Wall Street names. And as oil approached $150 a barrel in July, Middle East sovereign wealth funds amassed even more cash for deals. But as venerable banks like Goldman Sachs and Morgan Stanley slide, Middle East funds are keeping their distance.
The explanation is simple, bankers in the Middle East say: There are plenty of other, more attractive assets vying for the attention of these funds. While no one would rule out entirely the possibility that a Middle East fund will rescue Goldman Sachs or Morgan Stanley, it seems unlikely, they say.
Markets around the world have been hit by a downturn, said Youssef Nasr, chief executive of HSBC Bank Middle East, so there are compelling, value-priced deals available all over - sports teams in Britain, publicly traded companies in Russia and opportunities closer to home, like Middle East infrastructure acquisitions.
Middle East funds certainly got out their wallets this month - just not for Wall Street banks. A unit of the Kuwait Investment Authority is taking stakes in the country’s national telecommunications company. An Abu Dhabi investment fund owned by the royal family purchased the Manchester City Football Club, a popular soccer team. A Dubai fund is in talks with the British real estate developer Minerva. Saudi funds are looking at agricultural deals in Pakistan.
Because these funds have already invested billions of dollars in U.S. financial institutions, they are less likely, not more likely, to put more cash into that sector right now, bankers say. Middle East sovereign wealth funds “put more money in a few months ago than they would have ideally done” because shares of financial institutions were relatively inexpensive then, Nasr said. That has “unbalanced” the portfolios of these sovereign wealth investors, he said.
“Now they need to go in the other direction,” he said, buying assets other than financial institutions, to diversify.
Jan Randolph, head of sovereign risk at Global Insight, an economic forecasting firm, said sovereign wealth funds “haven’t disappeared. They’ve remained on the sidelines or gone elsewhere.”
Middle East investors who were eager to seek stakes in financial companies a few quarters ago are staying away because the “magnitude of the crisis is much bigger than anyone thought,” Randolph said.
The sovereign wealth funds are also likely to be turned off by regulatory hurdles, political scrutiny and management issues.
Foreign purchases of U.S. banks have attracted particular attention, ever since a scandal in 1991 involving the Bank of Credit and Commerce International, a bank based in Luxembourg that was seized in a coordinated action by regulators that year. BCCI had purchased stakes in U.S. financial institutions without fully disclosing its involvement to regulators.
And none of the big sovereign wealth funds wants to engage in another bruising battle in the U.S. Congress like the one that erupted when Cnooc of China tried to acquire Unocal in 2005. The U.S. oil company went to Chevron.
Finally, the sovereign wealth funds generally have small staffs and have few people whom they could send to protect their interests in the event they took control of a major U.S. investment bank.
Some sovereign wealth funds in Asia are still interested in U.S. financial assets, though. The South Korean state-run fund, Korea Asset Management, for example, is hoping to buy nearly a billion dollars in nonperforming loans in the United States.
“The tables have turned,” the chief executive, Lee Chol Hwi, told Bloomberg News this week. Now Asian fund managers are coming to bail out U.S. banks, the reverse of a decade ago, he said.
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Middle East sovereign funds steer clear of U.S. deals
By Heather Timmons and Keith Bradsher
18 September 2008
NEW DELHI: As the entire U.S. investment banking industry seems to teeter on the brink of disaster, investors are asking: Where are the Middle East mega-funds, flush with oil money?
After all, less than a year ago, these funds happily invested billions of dollars for minority stakes in some of the biggest Wall Street names. And as oil approached $150 a barrel in July, Middle East sovereign wealth funds amassed even more cash for deals. But as venerable banks like Goldman Sachs and Morgan Stanley slide, Middle East funds are keeping their distance.
The explanation is simple, bankers in the Middle East say: There are plenty of other, more attractive assets vying for the attention of these funds. While no one would rule out entirely the possibility that a Middle East fund will rescue Goldman Sachs or Morgan Stanley, it seems unlikely, they say.
Markets around the world have been hit by a downturn, said Youssef Nasr, chief executive of HSBC Bank Middle East, so there are compelling, value-priced deals available all over - sports teams in Britain, publicly traded companies in Russia and opportunities closer to home, like Middle East infrastructure acquisitions.
Middle East funds certainly got out their wallets this month - just not for Wall Street banks. A unit of the Kuwait Investment Authority is taking stakes in the country’s national telecommunications company. An Abu Dhabi investment fund owned by the royal family purchased the Manchester City Football Club, a popular soccer team. A Dubai fund is in talks with the British real estate developer Minerva. Saudi funds are looking at agricultural deals in Pakistan.
Because these funds have already invested billions of dollars in U.S. financial institutions, they are less likely, not more likely, to put more cash into that sector right now, bankers say. Middle East sovereign wealth funds “put more money in a few months ago than they would have ideally done” because shares of financial institutions were relatively inexpensive then, Nasr said. That has “unbalanced” the portfolios of these sovereign wealth investors, he said.
“Now they need to go in the other direction,” he said, buying assets other than financial institutions, to diversify.
Jan Randolph, head of sovereign risk at Global Insight, an economic forecasting firm, said sovereign wealth funds “haven’t disappeared. They’ve remained on the sidelines or gone elsewhere.”
Middle East investors who were eager to seek stakes in financial companies a few quarters ago are staying away because the “magnitude of the crisis is much bigger than anyone thought,” Randolph said.
The sovereign wealth funds are also likely to be turned off by regulatory hurdles, political scrutiny and management issues.
Foreign purchases of U.S. banks have attracted particular attention, ever since a scandal in 1991 involving the Bank of Credit and Commerce International, a bank based in Luxembourg that was seized in a coordinated action by regulators that year. BCCI had purchased stakes in U.S. financial institutions without fully disclosing its involvement to regulators.
And none of the big sovereign wealth funds wants to engage in another bruising battle in the U.S. Congress like the one that erupted when Cnooc of China tried to acquire Unocal in 2005. The U.S. oil company went to Chevron.
Finally, the sovereign wealth funds generally have small staffs and have few people whom they could send to protect their interests in the event they took control of a major U.S. investment bank.
Some sovereign wealth funds in Asia are still interested in U.S. financial assets, though. The South Korean state-run fund, Korea Asset Management, for example, is hoping to buy nearly a billion dollars in nonperforming loans in the United States.
“The tables have turned,” the chief executive, Lee Chol Hwi, told Bloomberg News this week. Now Asian fund managers are coming to bail out U.S. banks, the reverse of a decade ago, he said.
Keith Bradsher reported from Hong Kong.
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