Thursday, February 28, 2008

Private Equity going to Abu Dhabi

In FT:
Private equity firms are now approaching sovereign wealth funds for loans for big leveraged acquisitions, filling the gap left by investment banks struggling with the credit squeeze, leading buy-out bosses said on Wednesday...

“Effectively you will just intermediate Wall Street and the City of London out of the picture,” said Mr Hands. “It is already happening.” He said the Abu Dhabi Investment Authority (ADIA), the world’s biggest SWF, “will effectively replace Wall Street”...

Remember when Warren Buffett said the "dollar would be worth less" and commentators said "the dollar would be worthless?" It's the same here. Sovereign wealth fund? Or is it the Sovereign's wealth fund? When funding comes from offshore private accounts, it would help if you have a stake in the world's largest bank. And now private equity comes calling, with their hat in hand.

Today the had this to say:

SWFs are accused of being opaque as regards financial reporting and investment strategy, and of pursuing political as well as commercial ends.

The IMF, for its part, has emphasised the risks to the global economy of increased financial flows through “black boxes”, as the Fund's chief economist, Simon Johnson.

The irony is that banks in both Europe and the US have not just welcomed but actively solicited investment from the likes of the Kuwait Investment Authority (KIA), which participated to the tune of US$5bn in January’s capital-raising exercise by Citgroup and Merrill Lynch, and the Abu Dhabi Investment Authority (ADIA)—the world’s biggest SWF with assets estimated at some US$800bn—which injected US$7.5bn into Citi in November. And in straitened times, politicians too have encouraged such moves by the funds that, buoyed in the Gulf Arab case by record oil revenues, have the ready cash currently so lacking during the Western credit crunch.

Backlash? Just rumblings. The SWF's can invest, or hold a depreciating dollar. And we can watch the disintermediation of Wall Street from the palaces of Dubai.

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