Monday, March 17, 2008
Abu Dhabi Sets Investment Code - WSJ
Chip Cummins, Wall Street Journal, reports that Abu Dhabi sent a three page letter to Treasury Secretary Henry Paulson and other Western officials laying out the principles that will guide their investments in Western assets. The other recepients of the letter are Group of Seven industrialized nations, the IMF, the World Bank, the Organization for Economic Cooperation and Development, and the European Commission.
The Abu Dhabi Investment Authority, with assets of as much as $875 billion by one estimate, late last year invested $7.5 billion in Citigroup Inc. Meanwhile, Mubadala Development Co., a smaller Abu Dhabi investment vehicle, recently bought stakes in the Carlyle Group and Advanced Micro Devices Inc. In the letter, Yousef Al Otaiba, Abu Dhabi's director of international affairs, writes that the emirate "has never and will never use its investments as a foreign policy tool." Instead, Abu Dhabi entities "have always sought solely to maximize risk-adjusted returns," the letter says. But Abu Dhabi also warns against blocking deals that could be important for the health of the global economic system. The emirate wants "to ensure that financial markets remain open, that investors that play by the rules are not discriminated against, and that the regulatory process remains transparent and predictable," the letter says.
I think this letter has nothing to do with the Citigroup or Dubai Ports or other investments that have been in the news in the past year or so. More likely, this is about what I referred to in the previous post. The question of whether or not Abu Dhabi, and other oil producing nations, are investing in hedge funds which then use the investment for betting on oil futures. If this came out to be true, it would cause a horrific scandal the likes of which would cause a permanent rift between the oil producing and consuming countries.
What's likely to happen is that Abu Dhabi will slowly reduce their exposure to oil related financial investments, if any. They can, of course, still invest, or become partners, with oil companies here in the US and acquire assets related to distribution and refining. But even that, in the current climate, seems unlikely.
On a certain level, you have to feel sorry for Abu Dhabi. They're playing it according to our own capitalistic free market rules. And we throw nationalism in their faces. We want them to rescue Citi, but we don't want them to touch the ports. We want them to keep us happy with an unlimited supply of cheap oil (which is one of the most powerful, strategic and geo-political weapons available today), but we don't them to use that money to buy strategic assets in the US.
At the very least, what can be said about Abu Dhabi and ADIA is that they have, of late, been much more transparent about their activities than other SWF funds. Note to the protectionists - It cuts both ways. At some point, people you keep out of your house will stop you from entering theirs. There are subtle ways for Abu Dhabi to respond to this rebuff of their money. They could stop US oil companies from acquiring any more oil related assets directly. After all, oil is one of the most strategically valuable assets in the world today. What would happen if they don't allow any more US investments in oil infrastructure in Abu Dhabi? Nothing - To them, since we still need their oil. To the US? A bucketload of grief.
The Abu Dhabi Investment Authority, with assets of as much as $875 billion by one estimate, late last year invested $7.5 billion in Citigroup Inc. Meanwhile, Mubadala Development Co., a smaller Abu Dhabi investment vehicle, recently bought stakes in the Carlyle Group and Advanced Micro Devices Inc. In the letter, Yousef Al Otaiba, Abu Dhabi's director of international affairs, writes that the emirate "has never and will never use its investments as a foreign policy tool." Instead, Abu Dhabi entities "have always sought solely to maximize risk-adjusted returns," the letter says. But Abu Dhabi also warns against blocking deals that could be important for the health of the global economic system. The emirate wants "to ensure that financial markets remain open, that investors that play by the rules are not discriminated against, and that the regulatory process remains transparent and predictable," the letter says.
I think this letter has nothing to do with the Citigroup or Dubai Ports or other investments that have been in the news in the past year or so. More likely, this is about what I referred to in the previous post. The question of whether or not Abu Dhabi, and other oil producing nations, are investing in hedge funds which then use the investment for betting on oil futures. If this came out to be true, it would cause a horrific scandal the likes of which would cause a permanent rift between the oil producing and consuming countries.
What's likely to happen is that Abu Dhabi will slowly reduce their exposure to oil related financial investments, if any. They can, of course, still invest, or become partners, with oil companies here in the US and acquire assets related to distribution and refining. But even that, in the current climate, seems unlikely.
On a certain level, you have to feel sorry for Abu Dhabi. They're playing it according to our own capitalistic free market rules. And we throw nationalism in their faces. We want them to rescue Citi, but we don't want them to touch the ports. We want them to keep us happy with an unlimited supply of cheap oil (which is one of the most powerful, strategic and geo-political weapons available today), but we don't them to use that money to buy strategic assets in the US.
At the very least, what can be said about Abu Dhabi and ADIA is that they have, of late, been much more transparent about their activities than other SWF funds. Note to the protectionists - It cuts both ways. At some point, people you keep out of your house will stop you from entering theirs. There are subtle ways for Abu Dhabi to respond to this rebuff of their money. They could stop US oil companies from acquiring any more oil related assets directly. After all, oil is one of the most strategically valuable assets in the world today. What would happen if they don't allow any more US investments in oil infrastructure in Abu Dhabi? Nothing - To them, since we still need their oil. To the US? A bucketload of grief.
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