30 April 2008

FT: Gulf investor warns of EU over-regulation

One of the most powerful Gulf investors has warned that European attempts to force greater transparency on sovereign wealth funds are making the continent unattractive for investment.

Sultan bin Sulayem, head of Dubai World, said such moves by regulators were discriminatory and would deter him from investing. In an interview with the FT, the head of Dubai’s powerful government-backed conglomerate said Europe was now exerting more pressure on SWFs than the US, which has openly resisted Arab investment in assets deemed “strategic”.

“People who have money to invest, if they hear that somebody’s going to discriminate against them, they wouldn’t go [there],” he said. He said western officials were wrongly placing Dubai’s government or ruler-backed investment companies in the category of sovereign wealth funds, and therefore putting them at a disadvantage from competitors such as private equity firms.

Dubai World controls DP World, the fourth-biggest port operator in the world, as well as Istithmar, a high-profile investment fund. DP World in 2006 was forced to dispose of American operations that were part of its takeover of P&O, the UK container terminals and ferries operator, after a US government review. The fund has also been active in China and Africa.

Mr bin Sulayem’s criticism of Europe follows recent attacks by the Kuwait Investment Authority, one of the world’s largest SWFs, on the European Union’s proposals, made last year, for a voluntary code of conduct for such funds. The European Commission has said that if a code of transparency were not agreed, it would not rule out EU-wide regulation. Mr bin Sulayem has already faced a backlash against Arab investments in the US after the September 11 terror attacks.

Mr bin Sulayem and other Dubai officials argue that their investment funds are run on a commercial basis and therefore should not be seen as driven by politics.

“In our case, our records are open, we borrow from the banks to finance something...then the gain from the real estate business we put it in an investment [abroad],” he said.

With backing from Sheikh Mohammed bin Rashed al-Maktoum, Dubai’s ruler, the rapidly growing emirate has set up several funds that have been aggressively investing abroad contributing to global concerns over the intentions and lack of transparency of these funds.

“These investment funds are not run by governments. I invest because there is a return and I will sell and I do not need to take permission from the government whether I’m buying or I’m selling,” said Mr bin Sulayem.

Across the Gulf, sovereign wealth funds say they resent the pressure they are put under by western politicians while at the same time being courted by banks seeking rescue from the credit crisis.

The largest SWF in the region – the Abu Dhabi Investment Authority – has sought to deflect western, particularly US, criticism by agreeing with the US Treasury on a set of principles for investment. But so far, no other Middle East fund has followed in ADIA’s path.

Sheikh Hamad bin Jassem, Qatar’s prime minister and head of the Qatar Investment Authority, the country’s SWF, told the FT recently: “We’re very transparent, we invest according to countries’ rules, we’re not driven politically and we are helping the international economy.” Asked about the ADIA deal with the Treasury, he said: “We’ll wait and see, we’ll see how it works.”

By Roula Khalaf in Abu Dhabi

© Financial Times