In Depth January 10, 2008, 5:00PM EST

Who's Afraid of Mideast Money?

The men who manage the region's sovereign wealth funds are using the billions from Persian Gulf oil revenues to change the face of global finance

by Emily Thornton and Stanley Reed

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Dubai's Jackson is keen on companies unfairly tarred by the subprime mess Jude Edington/Redux

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Ba'alawy of Dubai Group has taken a 20% stake in Nasdaq Jude Edginton/Redux

Deep inside a fortress of government ministries in Kuwait City, Bader M. Al Sa'ad moves billion-dollar chunks of wealth around the world like chess pieces. Slim and stately, the head of the Kuwait Investment Authority manages $213 billion on behalf of his government. His portfolio, one of the biggest so-called sovereign wealth funds in the world, is constantly replenished with money that flows into Kuwait in exchange for the oil that flows out. As prices top $100 a barrel, Kuwait's coffers are swelling.

With portraits of the emir and crown prince looming above Al Sa'ad's desk, one might expect the 50-year-old money manager to be tight-lipped about his investment strategy. But Al Sa'ad, who has held his post for just four years, is in a chatty mood. He says he wants to invest more in China and Brazil and other hot emerging markets—and less in Britain and France. He's also keenly interested in leveraged buyouts and wants to spend at least $4 billion on big stakes in blue chip companies, especially American ones, on top of the roughly $17 billion he already holds. He's even interested in U.S. mortgage-backed securities, a contrarian play if there ever was one. Al Sa'ad says he has about 15% of the fund in emerging markets, hedge funds, and private equity, up from almost zero when he started. "We have been quiet for a while," he says. "But now we are knocking on doors."

Pounding is more like it. Sovereign wealth funds from the Persian Gulf are changing the face of global finance in ways that unnerve many Westerners. In recent months Gulf funds have bought large chunks of Citigroup (C), the private equity giant Carlyle Group, semiconductor heavyweight Advanced Micro Devices (AMD), planemaker European Aeronautic Defense & Space (EADS), and many other big companies. Gulf funds are also getting into leveraged buyouts, sometimes alongside private equity firms and sometimes by themselves—despite having little experience operating companies. "Large sovereign wealth funds have become major players in private equity, not only as investors but also as competitors," says David Rubenstein, a founder of Carlyle, which sold a 7.5% stake to an Abu Dhabi fund in September. Soon, says Gregory A. White, managing director at Thomas H. Lee Partners, "they will be the industry. We will be working for them."

BusinessWeek recently paid visits to four of the region's most powerful money managers: Kuwait's Al Sa'ad and Dubai's Sameer Al Ansari, Soud Ba'alawy, and David Jackson. Their rise from relative obscurity has been breathtaking; rarely have so few come to control so much, so quickly.

The fund managers insist that Western businessmen and politicians have nothing to fear. Al Sa'ad ticks off a well-rehearsed list of reasons why CEOs should rejoice at the prospect of having Kuwait as a major shareholder. Reason 1: His fund will agree to multiyear lockups, providing long-term capital. Reason 2: Al Sa'ad expresses concerns to CEOs behind closed doors, not in the press. "If I were a CEO, I'd look for stability," he says.

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