Meet Our New Sovereign Wealth Fund Overlord

The NYT offers us a much-needed look at our new sovereign wealth fund overlord, the Abu Dhabi Investment Authority (ADIA), the guys who just bought a big chunk of Citibank.

Abu Dhabi has about 9 percent of the world’s oil and 0.02 percent of its population. The result is a surfeit of petrodollars, much of which is funneled into a secretive, government-controlled investment fund that is helping to shift the balance of power in the financial world.

After decades in the shadows, the fund, the Abu Dhabi Investment Authority, is turning heads on Wall Street and in Washington by making high-profile investments in the United States and elsewhere.

[snip]

[ADIA’s $650 to $700 billion in] riches, coupled with the more aggressive stance being taken by ADIA and other sovereign funds, has raised concern that these investors will wield their wealth for political as well as financial reasons.

ADIA’s secrecy is also drawing scrutiny. The fund has no internal communications department, although it says it is in the process of setting one up. When sovereign fund leaders from around the world descended on Davos, Switzerland, last month for the World Economic Forum, no one from ADIA saw fit to show up.

Unfortunately, the article kind of reads like the NYT’s Vicki Iseman article on McCain–it reflects unease, but doesn’t state clearly the reason for the unease. Big money, secrecy, what’s wrong with that, if they want to bail our biggest banks out of the shitpile, right?

One place to start might be to further develop the connection between the al-Nahyan family and their past involvement in secret big money ventures, BCCI.

The fund’s chairman is Sheik Khalifa bin Zayed al-Nahyan, the president of the United Arab Emirates and the ruler of Abu Dhabi. He has a cautious and reserved disposition and does not take an active role in ADIA. When Citigroup’s chairman, Robert E. Rubin, traveled to Abu Dhabi last November, his courtesy call was made to Sheik Mohammed bin Zayed al-Nahyan, crown prince of Abu Dhabi and the point person for the United States-Abu Dhabi relationship.

[snip]

One view is that ADIA’s penchant for secrecy stems from its experience during the scandal at the Bank of Credit and Commerce International in the early 1990s, during which ADIA is said to have lost hundreds of millions of dollars. The al-Nahyan family became embroiled in regulatory investigations, although no charges were ever brought against them.

But people who worked at ADIA from its earliest days in the late 1970s and 1980s say that the fund’s reticence dates to its formation. Some see this as a reflection of Abu Dhabi’s small size, insular culture and geographical vulnerability, a sense that the less that is known about the specifics of ADIA’s hoard, the better.

Khalifa’s father, Sheikh Zayed, largely bankrolled the corrupt network of banking and money laundering known as BCCI. He also served as a front for at least one of BCCI’s successful attempts to illegally buy American banks (and bankrolled another). When BCCI started to fall apart, Zayed’s attempt to stave off financial losses and embarrassment persuaded the Bank of England to hold off on shutting it down.

Now, Zayed was not the mastermind of BCCI, and as the NYT article notes, he lost buckets of money when it collapsed. But his wealth–and a secrecy excused by comments about Abu Dhabi’s natural reticence, much like the one the NYT repeats here–made it possible. ADIA is accomplishing openly now what it accomplished through secrecy in the 1980s (admittedly, it can do so largely because of our banks’ own cupidity for more shitpile), but we still know very little about the who or why or what.

To some degree, this is no different than Japanese companies buying us up in the 1990s and then Chinese and now Middle Eastern. But given the history, it does deserve a wary approach.

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6 replies
  1. Phoenix Woman says:

    It’s especially bad now because what do we have that they’d want?

    Manufacturing? Those jobs were sent overseas by greedy CEOs.
    Raw materials? You can get those cheaper elsewhere.
    Warm bodies? Not when most developed and even many developing nations do a better job of educating and training their people (hint: free college helps).

    We don’t have much of anything right now besides massive amounts of debt.

  2. earlofhuntingdon says:

    To some degree, this is no different than Japanese companies buying us up in the 1990s and then Chinese and now Middle Eastern.

    Perhaps not.

    For America’s middle class, 2008 is not 1990. “Japan, Inc.” then wanted access to the world’s biggest economy and property market. It built industrial operations in carefully selected Congressional districts. It bought prominent real estate holdings (Pebble Beach, Rockefeller Center) and made quiet inroads into financial and entertainment industries. It obtained essential market intelligence for use domestically and in competition with us abroad, including the economic defense of the home Japanese market. (Sometimes too easily: one agency set up “to assist” US-Japanese business relations summed up the ease of its task with the motto, Deus ex Machina.)

    In 1990, an industrial depression was about to unfold that took mega-companies like Chrysler to the brink of bankruptcy, but from which many companies, including Chrysler, and most Americans emerged relatively unscathed (pensions, healthcare and jobs intact). Legislatures still considered funding state colleges a public duty and electoral winner. “Outsourcing” was rare; it was a sign that the company needed last rites. “Private equity” was regarded as nearly illicit bottom-feeding, beyond the corporate pale. The idea of privatizing swathes of government or of “selling” the Indiana turnpike to foreign investors would have been met with the same uncomprehending stares that greeted the idea of “selling” Manhattan for a few beads. Just like the stares that would have greeted the idea that a draft dodging business failure and drunken playboy could be elected president.

    In 2008, outsourcing is rampant and often badly done: its true costs discounted, its risks unassessed, the ability to undo it without paying a pirate’s ransom unnegotiated. It is a civil war that companies wage among themselves, but mostly with their workers. Secure employment, pensions, paid healthcare and affordable higher education are following the passenger pigeon into extinction. (Except as needed by those “hard to find”, “desperately talented” managers at the top). “Private equity” is the darling of Wall Street, the source of largesse for university endowments, charities, restaurants and property redevelopers. But it remains the merciless gutter of industries, employment and local communities. The dollar is at an all-time low, oil an all-time high. And that dry-drunk playboy is likely to be ranked as the worst president in American history.

    All of which is to suggest that the consequences from selling off key chunks of the US economy will be different this time. That the place of the dollar, of American managers and workers and their businesses is less secure. That the resources available to average Americans to deal with these changes are more meager and declining. And that the government we pay to help predict and respond to such challenges dismisses that public duty. Dismisses it as derisively as it did its obligation to plan the aftermath of invading a third-rate military power, sitting on the world’s second-largest oil supply, in the middle of the most unstable geography on the planet.

    This more limited knowledge and resource bank available to Middle America might be compared to fighting World War Two with sabers and horses. Not much good against a Blitzkrieg of tanks and aircraft. One thing, at least, is better. We have blogs – and the talent behind them and the people who read them, take heart and organize their efforts.

  3. sailmaker says:

    Interesting. I can not understand why we are letting people with a very different idea of transparency in banking laws onto our banking boards. I know we need their money because we were stupid greedy, but putting them at the helm of boats headed for some very serious rocks seems to be very counter intuitive.

  4. earlofhuntingdon says:

    This is all about keeping one’s own fat out of the fire.

    For the multi-millionaire executives that manage large financial institutions – who bet heavily on repackaging more and more suspect real estate mortgages with the expectation that they had “outsourced” any risk of default – the goal is to climb out of the hole while doing three things: Not admit there’s a hole, not admit it’s as big as Manhattan, and not admit that they’re at the bottom of it. Rather like George Bush.

    Billions of shareholders’ equity is at stake. But a more powerful motivation, I suspect, is that top executive jobs and seats on exclusive boards of directors, and hundreds of millions or billions in compensation are at stake. And possibly a few jail sentences or banishment from their trade.

    Consequently, anybody with the money, the willingness to put it into US Dollars, and to invest it with companies whose managers have recklessly subjected their businesses to enormous risk is welcome. There are few takers. Mostly private mega-wealth individuals in the Middle East and Asia and a few state investment trusts, such as those in China.

    Given a choice between the admission of business failure and loss of tens of billions worth of shareholders’ assets, and selling a large (or quietly controlling) stake to an unknown foreigner with ready cash who asks few questions (now, at least), what choice would an enterprising CEO or board member make, I wonder.

  5. masaccio says:

    John Edwards was our chance to discuss the role of concentrations of wealth in corporations and other mechanisms of wealth control. He was driven out of the race. The idiot media says that Obama and Clinton have adopted his ideas, but they are talking about the part where government deals with poverty, not the part where we recognize and deal with the damage done by the rich to the rest of us.

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