Arab sovereign wealth funds (SWFs) are likely to pounce on distressed US assets after the government bail-out plan eases the extraordinary tensions in financial markets, according to one of the top intermediaries in the Gulf.
Gary Long, president of Investcorp, the private equity group which channels petrodollars from some of the biggest private and institutional investors in the Gulf and invests them in western markets, said private investors and sovereign wealth funds were taking a different attitude to the Wall Street meltdown.
Wealthy private investors, "shell-shocked" by the crisis in the US financial system, were now expected to become more cautious and conservative. But institutions, including sovereign wealth funds, will be looking for opportunities.
"Institutional investors recognise that after a period of turmoil there will be a time when market opportunities will be great, so they are seeing what's happening as such a period," Long told the Financial Times.
"But it's hard to hide if you're a [private] investor. Every market is embattled: even the local stock markets, even real estate markets have been questioned. So private investors are going to be a little more conservative as opposed to chasing high returns," he added.
In recent weeks, the Middle East's SWFs, flush with oil-fuelled liquidity, have been remarkably quiet as some of the US financial stocks they had rushed to rescue over the past year were devastated by the global crisis.
Facing pressure at home, the $200 billion (Dh734 billion) Kuwait Investment Authority last week revealed that it had lost $270 million on its Citibank investment but recorded no losses on its investment in Merrill Lynch, which has been bought by Bank of America. The KIA had ploughed $5 billion into the two banks in January.
American institutions scouring the Gulf for capital have also been rebuffed, according to regional bankers.
Sovereign funds are not in the business of bailing out faltering banks, they were told, particularly at a time when they were under domestic pressure to intervene at home and shore up tumbling equity markets that were suffering from a spillover effect of the global turmoil.
Reasonable valuations
But people close to some of the region's sovereign wealth funds say that while they do not want to be seen as white knights, they are not sitting on the sidelines.
"Now the crisis is being dealt with, once that phase is mapped out, it will take years to bring back balance to the market and assets will be available at more reasonable valuations. So if you have cash it could be an interesting opportunity," says one person close to the $50 billion Qatar Investment Authority.
Long, meanwhile, said he expected sovereign wealth funds also to join hands with private equity firms in investing in distressed US assets. This year one Gulf fund set up a $1 billion partnership with Investcorp to buy mezzanine debt related to US commercial property.
"The bigger sovereign wealth funds have always had most of their investments through intermediaries," he said.
By Roula Khalaf, Financial TimesUS EXPORT COUNCIL PROVIDES ASSISTANCE TO US COMPANIES SEEKING ACCESS TO HIGH GROWTH MARKETS OVERSEAS. http://usexportcouncil.com/
