Gulf Arab funds eye US assets

Arab investors, flush with liquidity, are considering investments in distressed US financial assets as they try to turn the turmoil in credit markets into a regional opportunity.
Omar bin Sulaiman, governor of the Dubai International Financial Centre, said investment houses were now looking at the US and asking whether the bottom of the market had been reached.
Omar stated Monday that the more sophisticated investors were likely to look beyond bank stocks, buying distressed debt instruments either directly or through hedge funds.
His comments were made as some international bankers have recently been courting investors in the Gulf, a region seeing an unprecedented oil-fuelled boom, in hopes of finding new buyers for distressed assets created by the credit turmoil.
But Mr bin Sulaiman also warned that any attempt to suck new Gulf buyers into US markets could be damaged by its attitude towards sovereign wealth funds, which have faced a political backlash driven by concerns over transparency and fears that the government funds could turn their financial power into political leverage.
This backlash, he said, could encourage regional houses to turn their backs on western markets and seek more buying opportunities in Asia, where they face little or no such backlash.
"If you need foreign direct investment, you need to be welcoming, not scaring [investors] off," he said. "Talk about sovereign wealth funds is creating a lot of sensitivity, even for private investors. They are already looking elsewhere to hedge their positions."
The International Monetary Fund has been recommending voluntary transparency from sovereign wealth funds to pre-empt compulsory disclosure that could be imposed by some western states. Mr bin Sulaiman said some of the regional funds made such big investments that disclosures would have an impact on markets and put these groups at a disadvantage.
His comments echo the position of other government-backed investors in the region, who cherish the secrecy of their investments and have balked at suggestions they should become more transparent. The DIFC, which has established itself as a regional financial centre, is also part of the new breed of Gulf investors that have pursued aggressive acquisitions abroad.
DIFC Investment, the centre's investment arm, has acquired stakes in pan-European exchanges company Euro­next and in Deutsche Bank. Borse Dubai, a government entity partly owned by DIFC, has tied with the US Nasdaq to acquire OMX, the Nordic exchange, and to buy a stake in the London Stock Exchange.
Mr bin Sulaiman confirmed that Borse Dubai's next move was likely to be an investment into an Asian exchange. "It's only logical," he said. "It's a matter of when rather than whether we will [make an acquisition in Asia]."
Mr bin Sulaiman indicated that investors from the Gulf were looking at distressed opportunities in America. "There are teams right now looking at opportunities, but the challenge is knowing how low will prices go," he said.
Most western bankers believe Gulf investors are unlikely to be interested in buying complex mortgage securities, as institutions from the region have traditionally avoided complex instruments. However, some bankers hope Gulf money could provide a new source of demand for corporate leveraged loans.