Inspired both by potential high returns and a more fulsome welcome than that offered to date by western Europe and America, Gulf sovereign wealth funds are shifting their attention to Asia’s booming economies – and finding partnerships relatively easy to set up.
At the end of last year, the Qatari Investment Authority (QIA) announced that it had signed a MoU to establish a $1 billion joint fund with the Indonesian government to target infrastructure investment in the Asian nation. In the past several months, similar deals have followed in swift succession, suggesting the authority’s long-held ambition to expand its Asian exposure is finally becoming a reality.
The QIA has made no secret of its desire to invest in Asia – in September 2006 Qatar’s gregarious prime minister and QIA head Sheikh Hamad Bin Jassim Bin Jabr Al-Thani said that the fund was looking at Chinese, Korean and Vietnam banks. “We have a lot of dealings with Asia for energy so this could be something good for both sides,” he said.
In April 2008, QIA announced plans for a $1 billion joint fund, this time with Vietnam’s government investment arm, State Capital Investment Corp (SCIC). SCIC and QIA hope to invest in oil, power, infrastructure and property projects in Vietnam.
In May, QIA real estate head Navid Chamdia said the fund planned to invest in Asian property in major cities across Asia, and added that 40% of its property investment would be in Asia – a target which other fund officials have said could apply across all investment sectors.
The authority has signed an MoU with Singapore’s Keppel Corporation which will bring it an equity stake in China’s Tianjin eco-city development. It is also an investor in the Industrial & Commercial Bank of China, which recently announced it has received its first licence to operate from the Gulf, and will be based in the Qatar Financial Centre.
At the launch of the fund in Jakarta, QIA’s legal department head, Ahmed Al-Sayed, said: “Indonesia is attractive...Its potential is good.” He added that QIA would invest in Indonesia oil, gas, mining and power plants. Indonesian officials also mentioned infrastructure and power plant projects. In a statement, QIA executive director Hussein Al-Abdullah said, “This joint venture represents a natural extension of our strategy to increasingly focus investments in Asia.”
Eastward bound
Gulf anxiety over recent western talk of forcing greater transparency on SWFs is encouraging funds to turn towards Asia’s emerging markets. Kuwait Investment Authority (KIA) decried EU proposals for a voluntary code of conduct for SWFs following European Commission president Jose Manuel Barroso’s February 2008 comments that “we cannot allow non-European funds to be used as an implement of geopolitical strategy.”
KIA head Bader Al-Saad says a voluntary code of conduct would not benefit the economy and his fund had already met most proposed requirements on governance and transparency as called for by the US and EU.
“Complete transparency would raise more questions than answers. The consequences of imposing regulations on sovereign wealth funds will result in an adverse impact on global capital flows. These regulations will not solve or prevent any future financial crises,” he says.
On 20 May 2008 Al-Saad warned Germany that any attempt to regulate SWFs may result in KIA cutting back its commitments: “We are very concerned,” he told Der Spiegel, “we still consider Germany an economic anchor in Europe, even in the world. We still like to invest in Germany. But in the future, any regulations on sovereign wealth funds in Germany could limit our engagement in your country.”
Driven by such concerns, the KIA is also turning increasingly to Asia. Shortly after it acquired $750 million-worth of shares in the Industrial & Commercial Bank of China, Al-Saad announced that the fund had decided to increase the Asian share of its portfolio from 10% to 20%.
While SWF investments in European and US financial institutions have been accepted with curmudgeonly bad grace, emerging Asia has opened its arms to the growing investment pool. Indonesia has said it hopes to receive some $5 billion in investment from the Middle East in 2008 into its financial services, natural resources, infrastructure, property and plantations. The Indonesian government’s Middle East envoy, Alwi Shihab says he is optimistic about the target: “If we can bring in investment of $1 billion, like the Qatar Investment Authority, surely we can get high value investors from other Middle Eastern countries, for example Kuwait.”
Asian-Middle Eastern trade has existed for decades due to proximity and old trading ties. Beijing-based consultancy JL McGregor and the Dubai International Financial Centre recently estimated that the amount of Gulf money flowing into Asia – particularly China – over the next five years could reach $250 billion.
Some observers refer to the expected investment surge as a ‘repaving’ of the old silk route. But others remain sceptical, pointing to the difficulties of doing business in China, including language and protectionist barriers.