Abu Dhabi's Citigroup Bargain

(page 2 of 2)

Sovereign Wealth Funds

The Citi purchase is just one of a recent slew of financial deals (BusinessWeek, 11/1/07) by so-called sovereign wealth funds (SWFs) in the Gulf and elsewhere. Huw van Steenis, banking analyst at Morgan Stanley in London, estimates that SWFs have invested a total of $47 billion into Western financial stocks and specialist asset managers such as hedge funds. Some $37 billion of that has come in an eight-month period beginning in the second quarter of this year. "This is a major theme intensified by the pressure on some banks' capital ratios and challenging funding environment," he says.

Van Steenis thinks that the SWFs have their eyes on financial institutions that provide exposure to emerging markets, securities brokerage, or modern asset management, especially hedge funds and private equity. An ADIA-related institution, al Mubadala, recently bought 7.5% of Carlyle Group, the big private equity outfit, for $1.35 billion and took an 8.1% share of chipmaker Advanced Micro Devices (AMD) for $600 million.

Dubai International Capital, which is owned by the ruler of Dubai, has bought stakes in both HSBC (HBC) and hedge fund manager Och-Ziff (OZM). DIIC also said on Nov. 26 that it had taken a significant stake in Japanese electronics maker Sony (SNE).

Morgan Stanley figures that other institutions which might fit the bill for the funds include NYSE/Euronext (NYX), Deutsche Bank (DB), London-based hedge fund powerhouse Man Group (EMG.L), and Swiss banks UBS (UBS) and Julius Baer (BAER.DE). Because of the risks of a political backlash or regulatory action, van Steenis figures that "minority stakes will remain the majority of deals." Stay tuned.

Reed is London bureau chief for BusinessWeek .