Sovereign wealth funds, many of them state-owned investment funds from the Middle East, are rapidly retrenching, shifting their sights from New York and London and now financing firms closer to home.
These funds, located in Kuwait, Dubai, Qatar, and Abu Dhabi, are altering their investment strategies after they have lost billions of dollars in shares in ailing American and European banks, reports the Times of London.
Sovereign wealth funds are among the remaining sources of liquid capital available globally and many companies have sought cash injections from the Middle East. However, investments in banks such as Citigroup and Merrill Lynch have been harmful to the funds’ bottom lines.
Bankers for these funds are said to feel that they were lulled into investing before the full weight of the crisis was known.
The Kuwait Investment Authority (KIA) has moved $4 billion from Western markets into its own market and the Qatar Investment Authority has begun a rescue of local banks. Dubai International Capital (DIC), meanwhile, is focusing on emerging markets and reportedly the Abu Dhabi Investment Authority, a $700 billion fund, is decamping to local markets.
The KIA has assets estimated at $250 billion. Just two months ago, the KIA lost $270 million on a $3 billion investment in Citigroup, which was made at the beginning of this year. Citigroup's share price has fallen by two-thirds since that announcement and now the bank is being backstopped by the U.S. government.
The wealth funds — fleeing at the bottom of the U.S. market —could miss a coming stock market rebound completely, locking in their already massive losses.
"Plunging retail gas prices to about $1.85 per gallon nationally amounts to a huge consumer tax cut of perhaps $320 billion," writes Larry Kudlow in his weekly column.
"So we’ve moved from tight money and an energy tax hike a year ago, to easy money and an energy tax cut today. The former mix has generated a nasty credit crunch and a recession. But the new monetary-energy mix will generate recovery next year."
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