As the investment needs of the highly developed Gulf states dwindle, fund flows are increasingly diversifying away from traditional exposures to blue-chip listed stocks on either side of the Atlantic. Across the Gulf Cooperation Council (GCC) region, the state is functioning as a private equity house, whose profits benefit the whole economy, but that economy’s hereditary leadership most of all. Investment patterns in the GCC have been affected by a range of factors. These include changed post-9/11 attitudes, which have convinced wealthy Arabs most used to investing in Mayfair or Boston to place their money in Manama or Dubai instead. In addition, a new generation of (frequently) western-educated decision-makers is emerging, who are more entrepreneurial than their forefathers, and are revolutionizing the regional business environment.
Stalwart sovereign investment funds, such as Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority (KIA), have invested heavily for years in mature European and US stocks and securities. But in recent years ADIA has successfully branched out into emerging market investments, while the creation of a sister fund, Abu Dhabi Investment Council (ADIC), looks set to increase the value of investments made for the benefit of the emirate’s own economic development programme.
Another major investment vehicle to emerge is Mubadala Development Company (MDC), controlled by Abu Dhabi’s influential Crown Prince Sheikh Mohammed bin Zayed al-Nahayan, which has acquired some more exotic positions in overseas ventures, as well as significant stakes in home-grown ventures.
At home, MDC’s stakes include 51% of Dolphin Energy Ltd, the company behind the mega-project that will soon bring Qatari gas to Abu Dhabi’s power stations. MDC says it takes a hands-on, active approach to its investments; it also has a 7% stake in Aldar Properties, which is developing massive real estate plays. Abu Dhabi Ship Building Company, the region’s only military shipbuilder and repairer, is 40% owned by MDC too.
Stakes in European transportation companies, such as Italian plane manufacturer Piaggio Aero (Italy), in which MDC has a 35% stake, and sports car manufacturers Spyker Cars of the Netherlands and Italy’s Ferrari, in which the Abu Dhabi investment house has stakes of 17% and 5% respectively, may appear to be exotic overseas investments. But Abu Dhabi has secured an annual Formula One Grand Prix from 2008 onwards, perhaps in no small measure due to its interests in fast cars, while the emirate has made no secret of its ambitions to establish its own industrial heartland, preferably including motor manufacturing and aerospace industries.
This mix of concerns – speculative investment combining with national (family or emirate) interest – points to the fact that several Gulf emirates have made attracting and placing investment their biggest business of all.
Dubai Holding’s private equity arm Dubai International Capital (DIC) has in recent years bought stakes in waxworks and leisure group Tussauds, and in DaimlerChrysler. Through moves like this at end-2006 DIC had more than $5.5 billion of assets under management and says it is not through with its global acquisitions programme – it is looking at acquisitions in the US and Asia this year.
Qatar is a latecomer to global investing compared with veteran Gulf investors such as Kuwait and Abu Dhabi. Now, investments via QIA include a $205 million stake in Industrial & Commercial Bank of China, and the Qataris are also said to be eyeing private equity investments in Chinese companies before they go for initial public offerings. Given China’s appetite for Gulf hydrocarbons products, the growth of financial ties between the two regions is a logical next step.