GCC Sovereign Wealth Funds: Where are they today?

Nadine Hawa for CNBC, February 2009

It was just a little over a year ago when the world watched as Sovereign Wealth Funds came to the rescue of US financial giants in distress. In December 2007, the worlds largest SWF, the Abu Dhabi Investment Authority (ADIA), injected US$7.5 billion dollars into Citibank in efforts to shore up its capital.

Neighbouring Kuwait soon followed, as the Kuwait investment Authority (KIA), invested $5 billion dollars into both Citigroup and Merrill Lynch in January 2008, helping them cope with mortgage losses.

As SWFs gained popularity by saving the day with their multibillion dollar injections, one question remains: where are GCC sovereign wealth funds today?

While 2006 and 2007 were characterized by phenomenal growth, abundant liquidity, and lending made easy, today’s economic backdrop is rather different.

Long gone are the days of aggressive international investing. They have been replaced by a new reality. Sameer Al Ansari, the CEO of the Dubai Investment Company (DIC) says that today “some SWF’s are seeking to protect what they have, as opposed to aiming for return on equity or return on investment.”

While these massive pools of government-owned wealth are still very much alive, in a globalised economy, no one is shielded from the repercussions of a global recession.

Economists suspect that the Abu Dhabi Investment Authority, which is estimated at $900 billion dollars, may have lost up to a third of its value. However, due to the highly secretive nature of these funds, it is almost impossible to know for certain.

Most of the losses these GCC funds have incurred have been through investments made abroad, and that have seen their value drop steadily and substantially over the past year. The Qatar Investment Authority (QIA) which acquired a 15% stake in the London Stock Exchange at the end of 2007 has seen the value of its share drop nearly two thirds to date.

Simply because SWFs appear to have shied away, patiently sitting on the sidelines, waiting for market conditions to normalize before working up a new appetite, doesn’t mean that they have been completely idled by the global economic meltdown.

For now, they have taken on a new direction, one that points towards investing at home.

Aiming to reduce their exposure to global stock markets coupled with deteriorating market conditions at home and lack of liquidity, GCC sovereign wealth funds have been facing increasing pressure to focus on domestic investments.

In Kuwait, where the local sock exchange fell 38 % in 2008, the KIA recently pumped $1.1 billion dollars into the Kuwait Stock Exchange, in efforts to contain the sharp decline.

In the UAE, sovereign wealth funds are also investing at home. This month, the International Petroleum Investment Company (IPIC) a fund which invests in oil and gas related assets on behalf of the Abu Dhabi government, and which controls more than 90% of the UAE’s oil reserves, bought $408 million dollars of convertible bonds in Aabar Investment, a local energy company.

As Dr. Hatem Samman, the Director and Lead Economist of the Booz & Company Ideation Center in Dubai recently said in an interview on CNBC “GCC SWFs should utilize their wealth in slow economic times to stimulate local economic growth through their international and domestic investments”.