Sovereign Strength


Economic News

22 Jul 2010
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This year has already been active for the Qatar Investment Authority (QIA), the country's sovereign wealth fund (SWF), with several moves announced for the near future.

Sheikh Hamad bin Jassim bin Jabr Al Thani, the prime minister of Qatar, said on January 27 at the World Economic Forum in Davos, Switzerland that the QIA would be investing up to $15bn in blue-chip American and European banks, with transactions expected to take place within the first quarter.

The process appears to have already begun, with press reporting that the QIA is considering a 5%, $3bn stake in Credit Suisse. If the deal goes through, an investment in Credit Suisse could signal a change from the past, when SWFs usually stepped in to help banks in a crunch. Credit Suisse is not known to have been highly exposed to the US sub-prime crisis and therefore is not considered in tremendous need to attract capital to stem the effects of large write-downs.

"This is not about shoring up an ailing balance sheet," a market observer was quoted as saying in the British press. "This would not dilute Credit Suisse's capital structure or signal anything like the other banks' huge write-downs and their need to attract large foreign investments has sent out."

The QIA has grown rapidly since its establishment in 2005 and analysts estimate it now has some $60bn in assets. Like many other funds, it saw a particularly strong year in 2007, with SWFs around the world providing massive amounts of capital to US institutions as they struggled to recover from write-offs caused by the sub-prime mortgage crisis.

Government officials and global financiers alike are showing growing confidence in funds like the QIA's Delta Two fund, which now owns a major stake in J Sainsbury, one of the UK's largest supermarket chains. Although the QIA had pulled out of its original GBP10.45bn ($20.7bn) takeover bid late in 2007 after four months of negotiations, its final acquisition of 25%, revealed in January, nevertheless shows significant involvement in the company.

The QIA also owns nearly 10% of Sweden's stock exchange operator OMX Nordic Exchange and remains one of the two biggest shareholders in the London Stock Exchange, with a 15% stake.

Panelists at the World Economic Forum were in agreement that the financial power of sovereign wealth funds should be welcomed. "These are among the most professional investors in the world," said Stephen A Schwarzman, the chairman and CEO of the US's Blackstone Group, a global asset manager and financial advisory service. "In our experience, there is virtually no difference between going to a sovereign fund [for investment capital] and going to a state pension fund in the US."

A recent report by McKinsey predicted that oil-rich countries pump anything from $147bn to $628bn annually into the global financial stream. More than 20 countries presently have SWFs, but the holdings remain largely concentrated, with the top five funds (Abu Dhabi, Norway, Singapore, Saudi Arabia, and Kuwait) accounting for about 70% of such assets, the report said.

The International Monetary Fund (IMF) estimates that assets under management by SWFs are between $2trn and $3trn. The IMF predicts the total size will reach $10trn by 2015, which would account for almost 10% of all financial assets in the world.

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