Jan. 22 (Bloomberg) -- Barneys New York’s owner, Dubai’s Istithmar World PJSC, may sell the retailer less than two years after buying it as the fund struggles with losses and the luxury market slows, two people familiar with the situation said.

Istithmar doesn’t want to sell the business for less than the $942.3 million it paid in 2007, said one of the people, who declined to be identified because the talks were private. The state-owned fund has had calls from potential buyers and would sell its entire stake, one of the people said. Istithmar Chief Executive Officer David Jackson declined to comment.

The Dubai investment fund has struggled to expand Barneys outside the U.S. after Howard Socol resigned as chief executive in May and the luxury market withered. Istithmar was one of seven Gulf funds that lost a cumulative 15 percent in 2008, according to Saudi bank Samba Financial Group.

“If they’re in a hurry and need the cash right now, they will have to pay the price,” said Armando Branchini, vice president of Intercorporate, a Milan-based consulting firm specialized in luxury. “If Istithmar can be patient, they’ll get the pay-off.”

Dubai borrowed $80 billion to finance its transformation into the Persian Gulf’s finance and tourism hub and is being stung by a drop in oil and real-estate prices. Debt watcher Moody’s Investors Service has said Dubai may need help from the neighboring emirate of Abu Dhabi to fund those borrowings.

Istithmar suspended its vice chairman and chief financial officer in September after Dubai police detained them for alleged embezzlement at their previous jobs.

Istithmar Investments

Barneys sells fashions by designers ranging from Balenciaga to Manolo Blahnik. Founded by Barney Pressman as a cut-rate men’s suit store in 1923, the company began building up women’s lines in the 1970s. The Pressman family lost control in 1998 and the company exited bankruptcy protection in 1999. It was bought by Jones Apparel Group Inc. for $294.3 million in 2004. Istithmar acquired Barneys from Jones in September, 2007.

Istithmar was talking with Prada SpA about a partnership to expand in the Middle East as recently as last summer. Since then, the luxury market has worsened. Cie. Financiere Richemont AG, the world’s second-biggest luxury-goods company, this week said conditions are the worst in 20 years.

It’s unlikely anyone would pay “full price” for Barneys after the downturn in the U.S. economy and departure of Socol, said Branchini, the Intercorporate consultant. Socol added “edgy” brands to the Madison Avenue store, Branchini said, and distinguished it from rivals such as Saks Fifth Avenue.

Dubai Boom

Istithmar, which as of last year managed more than $10 billion, also owns 20 percent of Canadian circus troupe Cirque du Soleil and a majority of Gulf Stream Asset Management LLC.

Dubai is the second-largest sheikhdom in the United Arab Emirates, and said in November that it was seeking help from the federation’s government and pulling back supply of new real- estate projects. The emirate built the world’s tallest building and palm tree-shaped islands during its boom this decade.

Surging economic growth in Dubai, helped by record oil prices and new laws allowing foreigners to own property, sparked a real-estate boom that saw residential property prices increase fourfold in the last five years. Oil prices have since collapsed, while the collapse of global credit markets cut Dubai and its state-owned entities’ access to new borrowings.

To contact the reporter on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Haris Anwar in Dubai on Hanwar2@bloomberg.net.

Last Updated: January 22, 2009 14:03 EST