Page 26 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

Introduction 11

have built solid investment teams with diverse backgrounds and
global expertise. At the same time, the world’s leading investment
management firms have largely “discovered” the Gulf and are clam-
oring for access to the region’s capital.
While raising the overall return prospects for Gulf investors, the
increased sophistication of investment portfolios has also exposed
GCC investors to more financial risk and raised these investors’ visi-
bility profile. Buyouts and large equity stakes are, by their very
nature, high-profile forms of investing. A number of Gulf-based
investment firms have positioned themselves—through prominent
acquisitions, co-investment alongside leading global firms, published
research and thought leadership, and other public relations activity—
as world-class institutions. Kingdom Holding Company’s stakes in
prominent brands like Apple, as well as Prince Alwaleed Bin Talal’s
20
investment in the Four Seasons Hotels alongside Bill Gates, build an
image of Kingdom as a serious global investment institution.
The global financial crisis is likely to affect the sophistication of
Gulf investors in a number of ways. Investors who were highly specu-
lative and leveraged have experienced massive losses, and some firms
may shift their strategies, scale back, consolidate, or even disappear. In
the buildup to the crisis, a number of high-profile assets (including
Citigroup and, according to some reports, Lehman Brothers) 21 were
marketed to Gulf investors, who were seen as potential providers of
lifesaving capital. This experience is likely to cause Gulf investors to be
more discerning in future investment reviews and more confident in
the outside world’s need for their capital infusions.
Another key trend—explored in Chapter 5—has been the
increased interest by Gulf investors in domestic and regional (GCC)
investments. Whereas the local investments of the 1970s built the
region’s “hard” infrastructure—airports, roads, utilities, and the like—
the boom of the 2000s has enabled investments in “soft” economic
infrastructure. Investment in the diversification of local economies, the
creation of free zones (most notably in the UAE), and the human capi-
tal investments needed for knowledge-based economies have been
made in earnest over the past decade. These investments, while also
generating a financial return, enhance the fundamental competitive-
ness of the region and are part of longer-term development strategies
put in place by Gulf governments.
Although all GCC states are members of the WTO, the process of
opening Gulf markets to foreign investors has been a gradual one.
Foreign ownership stakes are generally limited by regulation. Free