The sovereign wealth funds of Qatar and Abu Dhabi, a United Arab Emirates state, have agreed to start up a $2 billion joint fund that will finance oil and petrochemical acquisitions. 

Qatar Investment Authority (QIA) and Abu Dhabi’s International Petroleum Investment Co. (IPIC) will each ante up $1 billion for the new fund, which will begin investing in "about September," Reuters reported.

"Both Qatar and the United Arab Emirates are focused on the long-term growth of our states… leveraging our combined investment expertise, we will target attractive opportunities on a global basis," Qatar Investment Authority Executive Board Member Hussain al-Abdulla said in a statement Thursday.

Abu Dhabi’s sovereign wealth fund holds about $875 billion in assets, The Economist reported, easily topping the list of largest sovereign wealth funds in the world. The emirate controls more than 90% of the U.A.E.’s oil reserves. 

Qatar’s sovereign wealth fund is worth about $50 billion. 

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Last year, QIA set up two $1 billion joint funds with Indonesia and emirate state Dubai.

Dubai Banking on U.S. Investments

Also yesterday (Thursday), the chief executive of Dubai Group, an investment firm owned by the ruler of Dubai, said he expects sovereign wealth funds to invest more in the struggling financial firms in the United States and Europe.

"People are really sensitive to it right now but I think that apprehension will start to disappear over a period of time. Sovereign wealth fund money will continue to flow to the [United States] and Europe in the coming years, as financial institutions will continue to need liquidity," Tom Volpe, Dubai Group chief executive officer told Emirates Business.

"Most financial institutions in the West, not just in the [United States], that are looking for capital tend to look at the Middle East. If you are looking for capital then it is the place you have to come to, which is very different from five or 10 years ago," he said.

Emirates Business is also owned by Dubai’s ruler, Sheikh Mohammed bin Rashid al- Maktoum.

In the interview, Volpe said Dubai Group is targeting returns in the 20%-plus range for its intended investment areas in 2008 – financial services, private equity, investment banking and exchange business.

Money Morning has extensively covered the many moves, motives and transactions of the world’s largest sovereign wealth funds (dubbed Global Cash Barons), including: Russia, Abu Dhabi, Dubai, China, Singapore, Qatar.

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• Money Morning:
  Qatar Sovereign Wealth Fund Buying Credit Suisse Shares, Qatar Prime Minister Says

The government of Qatar – operating through its state-run investment fund – is accumulating shares in Swiss banking giant Credit Suisse Group (CS) and says it intends to invest as much as $15 billion in U.S. and European bank stocks over the next year.

The announcement, made over the weekend by the prime minister of the Persian Gulf state is part of a major mobilization of capital that has what Money Morning has labeled as the "Middle East Cash Barons" bringing billions of dollars to bear on the U.S. and world banking sectors.

In the past year alone, these highly controversial state-run "sovereign wealth funds" have invested an estimated $70 billion in the world’s ailing banking system – most of them in the West. In the United States alone, the funds have provided bailout capital to the likes of Citigroup Inc. (C), Merrill Lynch & Co. Inc. (MER) and Morgan Stanley (MS) – financial-sector heavyweights whose balance sheets have been eviscerated by the subprime-spawned credit crisis. UBS AG (UBS) – also Swiss-based – has received Cash Baron bailout money, too.

During an interview late Sunday in the Qatar city of Doha, the prime minister, Sheikh Hamad bin Jasim bin Jaber al-Thani, told Bloomberg News that his country has "a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process."

Sheikh Hamad is also the chief executive officer of the Qatar Investment Authority, the $60 billion sovereign wealth fund backed by the Qatar government. Currently, the fund has plans to double in size by 2010, with up to 40% of its investments in Asia, and the rest in Europe and the United States, according to research conducted by
London-based Standard Chartered PLC.

Sovereign Wealth Funds: The (Big) New Kids on the Block

Long the capitalist bastion, Wall Street is finally getting some competition, and is feeling the heat from these state-controlled investment pools known as sovereign wealth funds. Some – including the Kuwait Investment Authority – have been around since the 1950s.

Much of the money comes from crude-oil sales, which is why many of these government-operated venture pools are situated in the Middle East. And since oil prices have soared in recent years, these funds have turned into veritable "war chests" of capital that enable the states to mount ambitious acquisition and infrastructure-development jags.

The governments of such countries as Dubai, Saudi Arabia, China, Russia and Norway operate the big investment pools – and more are on the way. The capital was amassed chiefly through crude oil sales, although China started its fund with some of the estimated $1.3 trillion in foreign reserves racked up from the massive trade surpluses it routinely runs.

The richest sovereign funds include the Abu Dhabi Investment Authority, or AIDA ($875 billion), the Government of Singapore Investment Corp. ($330 billion), and Norway’s Government Pension Fund Global, or GPFG ($322 billion), although several others may be larger. Some of the other top funds include Singapore’s Temasek Holdings Pte. Ltd., Mainland China’s China Investment Corp., and Dubai’s Dubai International Corp.

New funds have been announced in recent months.

Many of these Cash Barons are looking for more than just an investment return: They are seeking the deal-making know-how that over time will transform them into global financial titans. That quest induced the China-controlled State Foreign Exchange Investment Co. to invest $3 billion in the private-equity whiz The Blackstone Group LP (BX) back in April. The funds often take passive stakes, meaning they don’t demand management say-so and don’t seek seats on the target company’s board of directors.

Sovereign wealth funds currently control an estimated $3.2 trillion in assets. That’s already believed to be more than the $1.5 trillion to $2 trillion held by worldwide hedge funds [though some sources put the hedge-fund estimate as high as $5 trillion].

The International Monetary Fund (IMF) and other experts predict the state-run venture funds could control $12 trillion by 2015. State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to $3.2 trillion in assets. Fueled by record oil prices and rising currency reserves, sovereign fund assets may gain fourfold to $12 trillion by 2015, equal to the capitalization of the Standard & Poor’s 500 Index, according to Morgan Stanley.

Money Morning Investment Director Keith Fitz-Gerald thinks the ultimate total will actually be much bigger: Even now, he estimates that the total capital under the control of the global Cash Barons is more likely to reach $20 trillion by the middle of the next decade.

The growth rate is certainly accelerating. The U.S. Treasury says that 20 new funds have been created since 2000 – more than half of them since 2005 – bringing the total to nearly 40 funds with total assets between $1.9 trillion and $2.9 trillion.

Needless to say, the funds have become the focus of controversy and concern in Washington. Congress is worried about the manner in which sovereign funds seem to have exploded onto the scene, the large and potentially influential stakes the funds have been taking in big U.S. investment-banking firms, and their lack of "transparency" – there’s no global equivalent of the U.S. Securities and Exchange Commission to force disclosure of their holdings or of their investment intent.

That lack of transparency is apparently a particular issue with the Qatar Investment Authority, which Standard Chartered cites as being among the world’s "most-secretive funds," a group that also includes those in the United Arab Emirates, Kuwait, China, Qatar, Brunei and Venezuela.

But some of its deals have been in the spotlight of late.

Among the deals the QIA pursued in order to diversify its assets and build its asset base in the European market was the purchase of a stake in the U.K.-based supermarket chain, J. Sainsbury PLC (OTC: JSAIY). Since the Qatari sovereign fund Delta Two acquired a 25% stake in the supermarket early in 2007, Delta Two had been expected to launch a bid for the entire chain for an estimated $21.7 billion. Delta Two is an affiliate of the Qatar Investment Authority.

But the full-scale takeover hit a snag, however, after the Sainsbury family and company pension-fund trustees balked at the structure of the deal, worrying that the supermarket will be burdened with a crushing level of debt.

In mid-January, Forbes.com reported that Delta Two transferred its entire 25% stake – 435.16 million shares – to state investment vehicle Qatar Holdings LLC, a wholly owned subsidiary of QIA, the primary investment vehicle.

As its interest in Credit Suisse underscores, Qatar wants to build a position in the global financial sector.

Last September, Qatar Holding purchased a 20% stake in the London Stock Exchange Group PLC. That stake was subsequently diluted to about 15% on Oct. 1 when the LSE finalized its $2.4 billion buyout of the Borsa Italiana SpA.

In other deals, the QIA has chalked up a 9.98% stake in the Nordic and Baltic exchange OMX, after buying 3.5% of the Nasdaq Stock Market Inc. (NDAQ), adding to its existing 20% stake.

But on Friday, the Nasdaq said it expects its $4.5 billion deal to acquire Nordic and Baltic stock exchange OMX through a complex tie-up with Borse Dubai Ltd. – a sovereign wealth fund affiliate of the state of Dubai – will close on Feb. 27. In a statement, Nasdaq said Borse Dubai had been successful in a tender offer for OMX shares, which paves the way for it to form the Nasdaq OMX Group. Separately, Borse Dubai said that after it exercises its options, it expects to hold a 97.6% stake in the entity.

Now, after agreeing to buy Qatar’s stake in OMX AB, Borse Dubai said it would consider an offer from Qatar to sell the shares it holds in the London Stock Exchange Group, in which Borse Dubai is the biggest shareholder, according to Bloomberg News.|

Back in September, when Borse Dubai cut its deal with OMX and Nasdaq, it said it would be left with a 20% stake in the Nasdaq and a 28% stake in the LSE. Qatar threatened to scuttle the deal, and bought the rivaling OMX stake and the 20% position in the London Stock Exchange. That forced Dubai to boost its own OMX offer.

According to Bloomberg, Dubai now owns 20.4% of LSE, 5% more than Qatar’s holding. Both sovereign investors saw their stakes get diluted when LSE on Oct. 1 completed its takeover of Borsa Italiana S.p.A.

Other QIA investments include 100% ownership of the U.K.-based Four Seasons Healthcare, a 97.3% stake in Lebanon’s BLC Bank SAL, and part of a 3.12% stake in European Aeronautic, Defence & Space Co. (EADS NV), the parent company of airliner maker and Boeing Co. (BA) rival Airbus Industries SAS, Standard Chartered said.

Switzerland’s second-biggest bank, Credit Suisse said on Feb. 12 that its fourth-quarter profit plunged 72% after taking a $1.2 billion write-down on debt and leveraged loans. The stock has fallen more than 30% since early October. UBS, Switzerland’s largest bank, has taken $14 billion in write-downs.

Credit Suisse already has ties to Qatar. In March 2006, it became the first European bank to get a license for the Qatar Financial Centre, a self-regulated business park designed to attract lenders to the Gulf state as part of Qatar’s ongoing plan to diversify its own

And when Qatar went after J. Sainsbury last year, Credit Suisse was one of the three Europe-based banks that agreed to underwrite billions of dollars in debt to help finance the buyout.

News and Related Story Links:

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• CNNMoney.com:
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• Money Morning Economic Forecast Report:
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• CNNMoney.com:
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• Wikipedia:
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• MENAFN:
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• Money Morning News Analysis:
  Tough Talk About Sovereign Funds Spawns Fear of Economic Retaliation Against the United States.

• Forbes.com:
  Delta Two transfers its entire 25 pct Sainsbury stake to Qatar Holdings.

• Bloomberg News:
  Borse Dubai Would Consider Qatari Offer for LSE.