Page 76 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

60 PART I Background and Context

investments seem to represent only a relatively small component of
Gulf SWFs’ overall portfolios.
Another observation from these estimates is that SWFs’ appetites
for risk vary substantially from country to country. The QIA, whose
allocation for alternative investments is estimated to be a fifth of its
total assets, made high-profile investments in the financial sector in
the period before the financial crisis. The QIA took an 8 percent stake
in Barclay’s and a 9 percent stake in Credit Suisse in 2008. 13 Through
its UK-based affiliate, the QIA is believed to use financial leverage
(debt financing) to support aggressive equity investments such as its
bid for a 27 percent stake in the Sainsbury supermarket chain. 14 Such
tolerance for risk may be understandable considering the massive
scale of Qatar’s surpluses and its expected growth in national income.
Saudi Arabia’s SAMA, by contrast, is believed to have no allocation at
all for alternative investments—a reflection of central bank prudence
and the Kingdom’s slimmer overall surpluses. Gulf SWFs may share a
common mandate, but their risk profiles nonetheless vary.

Reactive to the Crisis
As discussed in Chapter 1, Gulf-based SWFs have certainly been
affected by the global financial crisis and economic recession. Like
other institutional investors, Gulf sovereign wealth funds endured
heavy declines in their holdings in listed equity markets and (to the
degree they were exposed) alternative investments. Prominent Gulf
investors—for example, the QIA, as mentioned earlier—had increased
their investments in the financial services sector shortly prior to the
meltdown in that industry.
The postcrisis environment, as discussed earlier, offers buying
opportunities for Gulf-based SWFs with financial strength and “dry
powder” as a result of ongoing surpluses. There are, however, sensitivi-
ties regarding the risk of reentering volatile markets too early—prudence
might dictate a “wait and see” approach instead. Furthermore, some
GCC investors may be careful to avoid being seen as bargain hunting
at a time of global distress—as noted by Don De Marino, cochairman
of the National U.S.-Arab Chamber of Commerce, the potential PR
“firestorm” associated with the perception of “Arabs buying up
assets too cheaply” is a real concern. 15
At the same time, analysis of publicly disclosed investments by
Gulf SWFs during 2008 suggests increased interest in high-growth
Asia and caution regarding investment in Organisation for Economic