Abu Dhabi investment fund shifting balance of power in financial world

Posted by Kendall Harmon

Abu Dhabi has about 9 percent of the world's oil and 0.02 percent of its population. One result is a surfeit of petrodollars, much of which is funneled into a secretive, government-controlled investment fund that is helping to shift the balance of power in the financial world....

ADIA is the largest of the world's sovereign wealth funds, giant pools of money controlled by cash-rich governments, particularly in Asia and Middle East. But Abu Dhabi, the wealthiest of the seven Arab emirates, says little about its fund. Few outsiders know for sure where ADIA invests, or even how much money it controls. And secrecy breeds hyperbole; some estimates of the fund's size exceed $1 trillion.

Before long, ADIA will certainly reach that mark. But for now bankers, former employees and analysts familiar with the fund peg it at $650 billion to $700 billion - an amount that is still more than 15 times the size of the Fidelity Magellan Fund. In all, sovereign wealth funds in countries like the United Arab Emirates, Kuwait, Singapore, China and Russia together control more than $2 trillion, a figure that could approach $12 trillion by 2015, analysts say.

Such riches, coupled with the more-aggressive stance being taken by ADIA and other sovereign funds, has raised concern that these investors will wield their wealth for political as well as financial reasons.

ADIA's secrecy is also drawing scrutiny. The fund has no internal communications department, although it says it is setting one up. When sovereign fund leaders from around the world descended on Davos, Switzerland, in February for the World Economic Forum, no one from ADIA saw fit to show up.

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Filed under: * Economics, PoliticsEconomy* International News & CommentaryMiddle East

5 Comments
Posted February 28, 2008 at 4:59 am [Printer Friendly] [Print w/ comments]



1. CharlesB wrote:

I lived and worked in Saudi Arabia for four years when oil was around $30/barrel.  It hasn’t been that long, folks.  It was a bonanza then.  Mind mind cannot comprehend what it must be like now.  Despite all the money, I would never go there again.

February 28, 6:28 am | [comment link]
2. Dale Rye wrote:

It would be a mistake to see this as simply an issue about oil wealth. The nearby Emirate of Dubai has almost as much money as Abu Dhabi, but very little of it is dependent on local petroleum resources. As hard a notion as it may be for Western capitalists to accept, the folks in the UAE and elsewhere are extraordinarily good businessmen and are beating us at our own game.

At the moment, one aspect of being good businessmen is related to the weak dollar. The UAE currency is pegged to the dollar, so it isn’t worth as much as it used to be against the pound or euro. China, Japan, Singapore, and Russia hold vast dollar reserves that are also devalued against stronger currencies. That makes investment in Europe or Asia expensive, but investment in the USA very attractive. I suspect that the reported investments and acquisitions by the Abu Dhabi and Dubai sovereign funds are only the tip of the iceberg.

February 28, 12:36 pm | [comment link]
3. Irenaeus wrote:

We now face a long, painful reckoning for the fiscal profligacy and general irresponsibility of the Bush Administration over the past seven years. This irresponsibility created massive federal budget deficits that have widened our trade deficit and made us once again dependent on an influx of foreign capital. By the time this Administration leaves office, it will have doubled the federal government’s publicly held indebtedness. This government borrowing binge helped fuel the sort of profligate consumption whose consequences are now coming home to roost in real estate markets and the financial system.

With the federal budget in (or close to) balance, we would have consumed somewhat less, been none the worse for it at the time, and been better off now and during the coming decade.

February 28, 3:56 pm | [comment link]
4. Andrew717 wrote:

It’s way more than Bush, we’ve been overspending for several decades now.  But our legislatures are all too aware of how easy it is to purchase support with spending from the public purse.  Very few (on either side of the aisle) are willing to cut their pet projects that purchase support in their districts.  I am fearful of the long term prospects.

February 28, 4:22 pm | [comment link]
5. Bob Lee wrote:

As Hillary promises: “I’m going to raise your taxes to at least the point they were in the ‘90s….but I’m going to ‘give’ you an affordable healthcare system.”

February 28, 6:38 pm | [comment link]
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