The Abu Dhabi Investment Authority's $7.5 billion investment in Citigroup (C) ramps up the Wall Street shopping spree by the Gulf states' sovereign wealth funds. With oil testing $100 a barrel, these investment behemoths are sitting on $1 trillion-plus in capital. They need to recycle these petrodollars, and Western financial institutions that have suffered big earnings hits and market value declines look like low-hanging fruit.
Sovereign wealth funds from the Middle East and Asia have invested $37 billion in Western banks, stock exchanges, hedge funds, and private equity outfits in the past eight months alone, figures Huw Van Steenis, a banking analyst in London with Morgan Stanley (MS). They've also poured money into Middle Eastern and Asian banks.
Until Citi, the Gulf funds largely shied away from mainstream Wall Street, preferring slices of hedge funds and private equity shops. Among the most prominent deals: Mubadala, an Abu Dhabi Investment Authority offshoot, took a 7.5% stake in Carlyle Group in May for $1.35 billion, and Dubai International Capital paid $1.1 billion for 10% of hedge fund Och-Ziff Capital Management in October. U.S. and European banks and brokerages hammered by the global credit crisis may seem like risky bets now, but Gulf investors are taking the long view. "These financial institutions may be in for a squeeze today, but they are high-quality," says Arif Naqvi, CEO of Dubai private equity firm Abraaj Capital. Nor are U.S. authorities likely to try to block such investments, provided they are transparent and don't involve majority control.