The mission of Arab SWFs in earlier days was to manage government surplus generated by oil and gas. The rulers of the GCC countries have established different investment vehicles to invest personal and family’s wealth, and the surplus of the government mostly more locally then internationally. The lack of competence in Western countries about the Gulf and their SWF universe has no precedents, starting with the mistake in associating those countries and their government’s funds with Donald Duck’s rich uncle, Scrooge McDuck, and naively believing that the Arab SWFs were a phenomenon able to contribute to the modern architecture of the current financial system, being a refuge from the global collapse. In contrast to public opinion, during the crisis in 2008-09 the supposed stellar liquidity of gas & petrodollars fell into lethargy and neither played a leading role in the 2003-2008 stock market rally. It was not a particular investment policy of Arab sovereign funds that made the market stronger or provided stability to the global financial system, but quite the reverse: In the speculative bull market 2003-08 Arab investors largely benefits from Western capital markets without contributing a particular framework to the global financial system; the rally provided brilliant opportunities in different classes of risk to GCC-investors in the same way it happened to other investors in the world.
SWFs from the Gulf raise debt. During the critical days of collapsing worldwide financial system in 2008, the investment vehicles from the Gulf were completely lacking in the market: the hungry, supposed long-term oriented SWFs from the Gulf lost their appetite and sold substantial stakes of Western listed companies, and were basically seller during the market rebound, accelerating the funding of new transactions visibly only on debt. The correlated development of fully leveraged real estate projects in the GCC without any existing real demand led to a hysterical rally of the domestic property market and destabilized their own economies, starting 2008 in Dubai, even though they were supposed to be rich countries due to their natural assets like oil & gas. Controversially we discovered that the supposed rich so called “sovereign funds” from GCC countries are issuing debt, and that all their governments need more cash and higher Forex exposure than what they can ever earn from gas & oil. Because of the financial collapse in 2008-09 the Gulf governments received the formal guidance from the GCC Secretariat to invest assets nationally rather than globally (think local – act local). The peculiar ubiquity of borrowing in all existing transactions of the GCC governments and their “SWFs” might be explained as the intentional formal policy to use the natural fortune generated by gas & oil reserves for fiscal stabilization, while the domestic real economic growth and the investments in the world could be sustained only by debt: a very risky, opaque and destabilizing strategy.
Estimations about real sizes of Arab SWFs are fully inaccurate (highly exaggerated numbers). During the years the assets managed by government’s vehicles supposedly to be SWFs had growing volumes from their return of investments and regular growth from new funds received from their own governments due to the income from oil, gas and real estate activities. The controversial figures reported by the press likely also include the valuation of domestic assets such as banks, airlines, telecoms, (collapsed) real estate and infrastructure projects, which it is not really comparable to the valuation of the AuM of other SWFs or mutual/pension funds in the rest of the world, and does not give any insight about the valuation methodology of the assets. Last but not least in 2008-09 the financial crisis reduced substantially all assets classes in the world. The real value of assets under management of an SWF from the Gulf is incognito to the most people active in the firm, especially to expats; only local executives know the real size of managed assets. Western media wrongly reported the SWF–status of all GCC rulers’ and governments’ linked vehicles. Because of the opaque structure of relationships and of ownership between a Gulf government and a ruler family, who has represented a government for generations, we cannot rule out in the GCC that the real owners of these supposed SWFs are members of ruler families, who de facto represent and are “the” government of a country in the GCC, as it was in Europe for all the regent families from the ancient time of Rome until last century.
The most famous sovereign fund in the world: ADIA Abu Dhabi Investment Authority, a “lighthouse” not only in the GCC, with high standards of professionalism and leadership. ADIA manages long-term, conservative, diversified assets received on a regular basis from the Abu Dhabi Finance Department, because of the surplus from oil business in the own emirate, and prefers a disciplined high exposure to equity and index-based products to bonds. Since years ADIA is supposed to be the largest asset management company in the world (source Oxford Business Group). Following to the development of oil and gas output in the GCC, the largest asset manager in the GCC should be definitively the Saudi pension fund SAMA (in 2009 with supposed $500bn AuM), not ADIA. Whereas ADIA is the biggest and most reputable “business training center” of the Emirates, able to give skilled Emiratis the experience to work after their CFA, MBA or master in UK/USA, and before to join the government or other linked companies in leading positions. The asset under management estimated by media and investment bankers in the range of $500bn to $1trn are purely fictional inaccurate bubble numbers. Definitely the turmoil in 2008-09 caused at least 10% to 20% losses of the administrated assets, and reinforced the natural conservative investment methodology. The most recurring estimation of $875bn AuM in third party reports is an invented number reported in 2005 by a British broker to a reporter, which media at that time blindly started to mention. Assuming this wrong assumption as basis for an hypothetical calculation of assets under management in 2008, due to a return of 10% p.a. in average on the existing portfolios (stock markets performed 25% to 50% during the same time), the mentioned AuM of 2005 should have reached in June 2008 a foolish value of $1.3trn of AuM, plus the value of dividends and all new assets received from the Abu Dhabi Finance Department. The US Department of State estimated in 2009 the real value of assets managed by ADIA at $200bn, the Washington-based IIF estimated $335bn in foreign assets and the New York-based Council on Foreign Relations $300bn: these last estimations should represent a reliable realistic size.