Page 79 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

CHAPTER 2 Entrusted Stewards 63

Although large institutional investors allocate only a small minority
of their assets to alternative investments, their funding provides the
lifeblood for specialist funds that are generally not open to (or suit-
able for) smaller investors.
Diversification not only brings portfolio benefits (i.e., strengthen-
ing the overall return on financial investments) to Gulf states, but also
helps meet the broader goal of economic diversification in the region.
The chief executive of Mubadala, a UAE-based GIV, has stated that
Mubadala “began investigating and investing in business-building
activities in strategic sectors at home and abroad through partnerships
that ensured diversification and development of the emirate’s [Abu
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Dhabi’s] economy.” As far back as 1974, Saudi Arabia recognized the
need for active government investment in order to support domestic
diversification and created the Saudi Industrial Development Fund
(SIDF), with the objective of “supporting the development of the pri-
vate industrial sector, by extending medium to long term loans . . . pro-
vision of guidance and advice in administration, finance, marketing
and technology to industrial firms in Saudi Arabia.” 19 Bahrain’s
Mumtalakat holds the Kingdom’s strategic investments in key compa-
nies and sectors, including Gulf Air (transportation), Aluminum
Bahrain (manufacturing), and the Gulf International Bank (financial
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services). GIVs’ areas of focus—especially at the time when the GIVs
are created—must fit within the broader economic strategies of the
states that fund them.
Within the UAE, a number of specialist GIVs have been created
over the years to support investment in sectors that have strategic
importance. The UAE’s federal governance (by which individual emi-
rates have discretion over certain resources, while the federation acts
as the sovereign) has fostered the establishment of emirate-level enti-
ties. The competition between emirates has generally been healthy,
motivating stronger performance and better results, but at times these
efforts have appeared unnecessarily duplicative. In the postcrisis
environment, it is expected that Abu Dhabi–based entities will exer-
cise more visible influence over investment activities federationwide,
in particularly with regard to attractive Dubai-funded assets with
growth potential and financing needs.
Table 2.5 (which is not an exhaustive list) provides a snapshot of
a few of the UAE’s specialist GIVs, their years of inception, and their
areas of strategic focus.
The areas on which these GIVs focus reflect key priorities of the
emirates that established them. As energy is the cornerstone of the