QIA: A Taste for Commodities

In the last month, even as markets have sold off on worsening macro news, many SWF watchers in the press remain  agog over the recent flurry of purchases by the Qatar Investment Authority across the commodities space, particularly the energy sector, as well as some other extensive purchases.  It seems a good time (if a […]

ADIA Parts the Curtain… A Tiny Bit

The Abu Dhabi Investment Authority (ADIA), among the largest sovereign funds, released its first annual report today. The report, which confirms information already mediated through the press, comes with a brand new website and some interesting information on the investment strategy and the different sub investment groups. The primary message seems to be to stress the fund’s role as a global citizen – after all the title is “prudent global growth”– to demystify the fund and to reduce strategic concerns foreign investors might have about its investments.  It does seems to be yet another example of the Santiago principles at work. At the beginning of the report, ADIA declares that its internal review deems that it has complied with these voluntary principles. However, the disclosures only go so far.

How Much Unity in the United Arab Emirates?

The quasi-default sparked by government-owned Dubai World in November–followed by somewhat tepid and only partial support from Abu Dhabi–has raised questions about the extent to which Dubai’s staggering, bubble-driven rise and fall over the past decade has upset the political foundations of the 38-year-old confederation known as the United Arab Emirates. Even as the UAE […]

Wednesday Note – After Dubai

This week we turn our attention to the fallout from the debts of Dubai Inc that roiled global markets last week. Today’s note is excerpted from two pieces of analysis available in full to RGE clients: “Dubious Dubai: Castles in the Air, Heads in the Sand?” and “Rerisking after Dubai: The End of ‘Quasi-Sovereigns?’” Last […]

What do Istithmar’s Troubles Signal for other Sovereign Investors?

The full version of this analysis, which includes a table outlining RGE’s updated estimates of the size of different sovereign wealth funds, is available to RGE premium clients.

In early September, Bloomberg reported that Istithmar, one of the investment arms of the government-owned conglomerate Dubai World, might be closed or forced to sell assets to raise cash. The report is unconfirmed (and as expected has been denied by Dubai authorities). Istithmar (Arabic for “investment”) might be best categorized as a “sovereign private equity fund.” Its strategy was to buy concentrated stakes in corporations, scaled up with leverage, improve the earnings returns and sell the firms at a profit. Unlike some of its private sector counterparts, however, Istithmar didn’t always buy controlling stakes of the firms in its investment portfolio.

Discussion of Istithmar’s tight finances has been circulating for months (including in this spring 2009 piece from ai5000), and it hasn’t made a new purchase in more than a year. The investment lull isn’t surprising, given its lack of new capital and reliance on leverage.  Still, the reports raise broader questions. Why now for any liquidation? What, for example, would be the spillover for other sovereign investors? Istithmar, as one of a handful of “sovereign private equity” funds, always seemed to be vulnerable in the credit crisis, given its leverage ratio and reliance on capital from the volatile revenues of other subsidiaries of Dubai World. Istithmar was intended to reinvest the profits on Dubai property and diversify returns. That capital was levered up around 7:1—or even 10:1 by some reports—to invest in global blue chip companies.