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Fight over Gulf wealth funds to intensify

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Gulf funds focus more on local investments; Arab Spring seen shrinking pool of investable assets; Asset managers look at more joint venture with SWFs; Competition for sovereign funding to rise

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May 21, 2012 4:10 by



A shift in focus from global to local investments by the big Gulf sovereign wealth funds after the Arab Spring is set to step up competition among Western governments, asset managers and companies hoping for some of their cash, a study by U.S. fund manager Invesco Ltd showed.

 

“Western governments, including the U.K., have approached SWFs (the funds) from the Middle East to help with economic recovery, but many will fight a losing battle,” Nick Tolchard, head of Invesco Middle East told reporters at a conference in Dubai.

 

“There is certainly less money to invest internationally so the stakes are higher.”

 

These funds are being allocated less money by their oil-rich governments post the Arab Spring, with surplus government cash available for international investment in Gulf Arab region set to fall by 9 percent in 2012.

 

The Arab Spring’s popular anti-government protests forced governments to put more emphasis on boosting local economies and infrastructure, the study said, resulting in lower international investments.

 

“Western governments and large institutions need a strategic re-think on how they approach Gulf funds. There is clearly a lot more emphasis on local investments,” Tolchard said.

 

The Gulf region is home to some of the world’s most prominent sovereign funds such as the Abu Dhabi Investment Authority, considered to be the world’s largest and the Qatar Investment Authority, among the most aggressive of global funds with stakes in large European corporates.

 

Abu Dhabi’s ruling family has been involved in talks this year over a stake in Britain’s state-owned Royal Bank of Scotland.

 

Large global asset managers and Western governments have flocked to the regional sovereign funds to grab a share of their wealth.

 

At the peak of the global financial crisis, some of the large Gulf funds stepped in to invest in high-profile financial names such as Citigroup Inc, Credit Suisse and Barclays. They are also heavy investors in high-end real estate in Europe and own trophy assets such as London’s Harrods store and football clubs.

 

But after the Arab Spring, many Gulf governments have committed billions of dollars to boost salaries, provide housing and better infrastructure to the young Arab population.

 

Invesco predicts Gulf sovereign funds to account for about 35 percent of the $1.6 trillion of sovereign fund flows globally. The asset manager expects money allocated to the funds by the Gulf governments this year to rise 8 percent, compared with a 13 percent increase in money allocated in 2011.

 

Funds that invest in local development projects are getting a larger share of the funding than those whose mandate is to diversify away from oil wealth.  That means global asset managers who sell investment schemes to these funds need to change their strategies, Tolchard said.

 

“The strategy has to change from just winning mandates from these funds. It has to be focused more on joint-venture opportunities and how g l obal (asset management) firms can play a participatory role in the investment process,” he said.

 

Invesco, based in Atlanta, which has about $668 billion in assets under management, first launched its survey in 2010. The study is based on more than 100 interviews with retail and institutional investors, Invesco said.



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