Foreign Wealth Funds Defend U.S. Investments

Profit, Not Politics, Is Motive, Officials Say

KUWAIT CITY -- It was not Bader al-Saad's idea to buy huge chunks of Citigroup and Merrill Lynch.

It was early January and Saad, managing director of one of the world's largest investment funds, was in his office as usual, reviewing potential deals in Kuwait and elsewhere in the Persian Gulf region, when the banks asked him to invest, he recalled.

"They called us. . . . We receive calls on most transactions," said Saad, whose fund bought stakes of $3 billion in Citigroup and $2 billion in Merrill Lynch.

The increasing pace of acquisitions in the United States by sovereign wealth funds such as Saad's Kuwait Investment Authority is raising concern about their goals and motivations. Run by nation-states to invest their government revenues, the funds are estimated to control $2.5 trillion and are projected to have $12 trillion by 2015. The six Arab states on the Persian Gulf's western shore, which control nearly a quarter of the world's oil supply, provided more than half of the money currently in the funds, according to Morgan Stanley.

At one extreme, the funds have been characterized as saviors, propping up the struggling U.S. economy with capital infusions. At the other, there are fears that their investments could turn political, that the funds could buy stakes in entities that could someday be used to compromise the security of the United States while furthering their national interests.

Saad and other fund managers from the Persian Gulf region say their investments are purely commercial and are made with one goal in mind: profit. They express exasperation that they are attacked for providing money that U.S. companies ask for.

"Why is everybody after sovereign wealth funds? What have they done? Did they misbehave in any country where they invested in? . . . All they are talking about is a fear of something that did not happen and will not happen," said Saad, whose fund is estimated to be worth $213 billion.

Muhammad al-Jasser of the Saudi Arabian Monetary Agency, which is forming a fund that may exceed $900 billion to become the world's largest, has said that "it's like the sovereign wealth funds are guilty until proven innocent." Sultan Ahmed bin Sulayem, head of Dubai World, which manages a $8 billion sovereign wealth fund, has warned critics in Western countries that if their money is not welcome, there are plenty of other places to invest.

Talal al-Zain, chief executive of Bahrain's $10 billion sovereign wealth fund, which hopes to make its first purchases in the United States this year, expressed similar sentiments. "I hope the hype about the sovereign wealth funds doesn't close the market, because that would be a shame," Zain said.

Transparency Debated

In recent weeks, the debate over the transparency and oversight of sovereign wealth funds has intensified. Officials in the United States and Europe acknowledge that they desperately need foreign investment but want to be assured that the funds providing the cash do not have political aims. The International Monetary Fund, backed by the U.S. Treasury Department, is drafting a voluntary code of conduct for sovereign wealth funds.

Many of the funds have resisted, arguing that there are no similar guidelines for private-equity or hedge funds, and that it's unfair to single out one group.

Last week, the U.S. Treasury department; Abu Dhabi's sovereign wealth fund, estimated to hold $250 billion to $1 trillion; and Singapore's GIC fund, believed to be worth $100 billion to $330 billion, announced that they agreed to a "philosophy" for the operation of sovereign wealth funds. For example, they said that investments should be strictly commercial.