Is Britain Up for Sale?
From the former Thai prime minister to a Middle Eastern property tycoon, Manchester City's changing ownership is emblematic of the shifting balance of power of the global economy.
The club confirmed Monday that it is to be sold by Thaksin Shinawatra to the Abu Dhabi United Group for Development and Investment, fronted by Dr Sulaiman al-Fahim, the chief executive of Hydra Properties.
The deal is one of many. Not only are football clubs increasingly snapped up by foreign investors, from Roman Abramovich's Chelsea to Malcolm Glazer at Manchester United, but businesses across all sectors are increasingly attracting fortunes made in booming developing economies.
It is not an entirely new trend—the Chinese bought MG Rover as long ago as 2002—but it is gathering pace. India's Tata Group picked up Jaguar Land Rover for £1.15bn in March, and in May, the Malaysian tycoon Ananda Krishnan took a 20 per cent stake in Johnston Press under the newspaper group's £212m emergency fundraising proposal.
But the deepest pockets, and the biggest shoppers, are the sovereign wealth funds (SWFs). Worth just $2bn (£1.1bn) in 2003, the value of SWFs rocketed to $92bn by last year, according to Monitor Group. The funds made some $58bn-worth of investments in the first three months of this year—more than the combined total between 2000 and 2005—and predictions of future value go up as high as $10 trillion (£10,000bn) by 2012.
"Individual investors, big companies and sovereign wealth funds are all part of the same story," said Gerard Lyons, the chief economist at Standard Chartered bank. "There's a shift in world economy where developing countries are becoming more important, and these investors are a reflection of that shift in financial power."
Mr Fahim's native Abu Dhabi has the biggest sovereign fund of all. There are two separate entities, the Abu Dhabi Investment Authority (ADIA) and the Mubadala Development Corporation. The former alone is estimated at $875bn, and between them the vehicles own stakes in ventures as diverse as Ferrari, the Suez Cement Company and New York's iconic Chrysler building.
In public, at least, Abu Dhabi's UK investments are limited. But the Prime Minister said in June that talks with the ADIA around the Government's plans to open up UK energy markets to foreign investors were progressing well. Other Middle Eastern countries are already well-represented here.
The Dubai fund spent $1.6bn on a 28 per cent stake in the London Stock Exchange in August last year, for example, and the Qatari royal family put up a £12bn bid for Sainsbury's, although the putative deal collapsed in November amidst the turmoil in the credit markets.
Although countries as diverse as Ireland and East Timor have SWFs, the focus tends to be on the "super seven" of Abu Dhabi, Singapore (which also has two), Russia, Norway, Kuwait, and China—which between them are estimated to be worth some $2.2 trillion. At least part of the recent acceleration of investment can be put down to the credit crunch. As one bank after another reported being hit by multi-billion dollar write-downs from the collapse of the sub-prime mortgage market, the need for emergency funding sent any number to cash-rich foreign investors including individuals, SWFs, and government-backed banks.
Citi, for example, was bailed out to the tune of $14.5bn by the Singaporean government, the Kuwait Investment Authority and Saudi Arabia's Prince Alwaleed bin Talal. Merrill Lynch offered preferred shares to investors including the Korean Investment Corp and Japan's Mizuho Financial Group. UBS turned to the Government of Singapore Investment Corporation, Morgan Stanley to China Investment Corporation, Barclays to the Qatar Investment Authority and Challenger, an offshore investment vehicle set up by country's Prime Minister to invest his family's wealth. And it is not over yet. Lehman Brothers is in talks with Korea Development Bank to raise as much as $6bn through a sale of up to 25 per cent of the bank.
The flurry of activity in the past 12 months has put the issue high on the agenda of groups like the International Monetary Fund and the G7.
SWFs are not new—the oldest have been around since the 1950s—but the acceleration of investment, the proliferation of other government-controlled vehicles, and the increasingly high-profile targets, have changed the temperature.
Private funds tend to raise fewer eyebrows, because it is assumed that they are motivated by purely commercial concerns. But government funds provoke suspicion. Such entities are under obligation to no one but their owner, their holdings are diverse and undisclosed, there ambitions unclear. The biggest worry is that the investments may be a back door to political ambitions.
Katinka Barysch, the deputy director for the Centre for European Reform, said: "What everybody will watch out for in the future is what kind of stakes these funds are buying, and whether there is any indication that they can be used for political ends."
Perhaps ironically, the only SWF that has caused any upset was the Norwegians. In 2006, the Iceland's Prime Minister saw it as contrary to the Nordic countries' financial destabilisation defence pact when the Norwegian fund, commercially motivated and spying the end of the Arctic boom, starting short-selling its neighbours bonds.
"There is no evidence of political involvement because SWFs have been very cautious in their investment strategies, often only taking minority stakes or being a passive shareholder," Ms Barysch said. Notwithstanding the Iceland incident, Norway is now leading the field in terms of SWF transparency, including confirmation, for example, that it will not take more than 10 per cent of any company. The country is also expected to be held up as a model of good practice in the IMF guidelines due to be published next month.
But even calls for transparency are not simple. There has to be a degree of discretion regarding a fund's asset position because that is what makes the money—without it the vehicle serves no purpose.
Individual countries are also keen to establish distinctions between themselves. Old and venerable funds like Singapore and Abu Dhabi do not want to be lumped in with Russia and China, for example. "Some of these countries have been around as good investors for decades," Ms Barysch said. "They are exactly what we need at the moment, namely long term and cautious investors."
Rather than fixed rules on what they can buy into or how much, some recommend a review system similar to that already in place in the United States, and about to come into force in Germany. The German cabinet passed a law last month establishing a review process if any foreign company wants to buy a share bigger than 25 per cent in a German company. But there is anguished debate in Germany about whether foreign investment will be put off by the measures, and being too heavy-handed carries a genuine danger of economic detriment.
Jan Randolph, the head of sovereign risk at Global Insight, said: "The more regulatory pressure there is and the brighter the spotlight shone on the SWFs, the more they will move their money into hedge funds and private equity and the like, where transparency issues are not so significant because all three are just unlisted pots of money."
Whether or not Manchester City needs Sulaiman al-Fahim, the global financial system needs the debate on foreign investment funds.