Funds from East investing in West

By Christopher S. Rugaber ASSOCIATED PRESS | Saturday, October 18, 2008

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Government investment funds from China and Qatar are moving new money into Western financial companies, a sign that the cash-rich funds haven't completely pulled back from the volatile U.S. and European markets.

The funds, often known as sovereign wealth funds, plowed about $40 billion into troubled institutions such as Citigroup Inc. and Merrill Lynch & Co. Inc. early this year but have since largely avoided U.S. and European banks as the financial crisis worsened.

Any renewal of interest from the sovereign funds could provide much-needed capital to Western financial institutions and other companies.

On Thursday, Swiss bank Credit Suisse Group said it had raised $8.75 billion in new capital, most of it from the Qatar Investment Authority, the Persian Gulf state's sovereign wealth fund.

Also Thursday, private equity firm the Blackstone Group said in a regulatory filing that it has agreed to raise the ownership limit for China's sovereign fund, the China Investment Corp., from 9.9 percent to 12.5 percent.

Last year, the CIC paid $3 billion for a stake in Blackstone's June 2007 initial public offering. It has since seen the value of that investment sink by roughly 70 percent, to the consternation of many government officials and citizens in China.

Last Saturday, Hamad al-Suwaidi, a director at one of the world's largest funds, the Abu Dhabi Investment Authority, said ADIA is reviewing proposals that "are coming in daily" to invest in Western companies. ADIA invested $7.5 billion in Citigroup in November, Mr. al-Suwaidi noted.

"We are evaluating our options with the other financial institutions," he said.

The funds don't invest solely in banks. Abu Dhabi's Mubadala Development Co., which manages about $10 billion, agreed this month to pay $314 million to raise its stake in semiconductor company Advanced Micro Devices Inc. to 19.3 percent from 8.1 percent.

"It's not clear if it's a trend," said Brad Setser, a fellow at the Council on Foreign Relations, referring to the deals announced Thursday.

Funds in other Persian Gulf states such as Kuwait and Abu Dhabi are focusing on stabilizing their own markets amid the global financial crisis, he said.

Sovereign wealth funds have existed since the 1950s but have exploded in size in the past decade. About two-thirds of the nearly 40 sovereign funds in existence were founded in the past 10 years, according to the International Monetary Fund.

The funds control about $2.5 trillion in assets, a figure the IMF estimates could reach $11 trillion by 2013. Oil-exporting states have set up funds to invest their petroleum revenue, while Asian countries such as China and Singapore use the money to invest trade surpluses.

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