Page 31 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

16 Introduction

example, certain family investors may seek to invest in sectors in which
they have their own businesses or in industries that complement their
family portfolios. Such investments can provide not only financial
returns but also strategic partnerships and market insights. Likewise,
certain investors may be keen to have the right to co-invest alongside
private equity funds in specific opportunities that have particular
appeal to them as a result of their investment strategies and preferences.
Investment managers who recognize these preferences can structure
relationships that have added appeal to Gulf-based institutions.
The rise of Gulf capital has implications for firms’ investment
strategies even if the firms have no direct contact with the region. In
Chapter 10, we explore a number of ways in which the activities of
Gulf-based actors can have an impact on the investment strategies of
international institutions. First, the interest of Gulf investors in a par-
ticular market or company can signal a “rising tide” of asset values in
that area. As in other investment communities, Gulf investors follow
one another’s activities and will often be inspired to pursue assets
that are similar to those bought by other GCC-based institutions. A
vivid example of this phenomenon has been the competition between
Borse Dubai and the Qatar Investment Authority for equity in over-
seas stock exchanges—including vying in 2007 for a stake in the
Nordic exchange OMX. 29 Even if a company has no interest in work-
ing with Gulf investors, knowing where these investors are going (or
from where they are retreating) can provide an important cue regard-
ing future asset values.
The appetite of GCC-based investors for co-investment along-
side global firms can also be a key input into the strategies of global
firms as they assess new investments. Investing alongside a Gulf
institution can make certain capital-intensive transactions more feasi-
ble and can also provide a built-in “exit option” for the non-Gulf par-
ticipants. This may be especially important for funds with a defined
timeline for entry into and exit from their investment positions.
Operating companies can also benefit from keeping an eye on the
investment preferences of Gulf-based institutions. Gulf capital is fund-
ing increasingly global companies, altering some industries’ competi-
tive dynamics. In the airline industry, for example, fresh capital has
enabled Gulf-based carriers to invest in new fleets of planes and fly from
state-of-the art airport hubs, building their appeal relative to competing
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airlines without access to this capital. Knowing which industries Gulf
dollars are likely to fund is thus an important indicator for firms that
wish to anticipate changes in their competitive environments.