It is good to be the king (of oil)
If oil stays at $140, the Gulf — based on projections that imply GCC spending and investment will rise so that the GCC needs $55 to $60 oil to cover its import bill — the big GCC funds and central banks should add close to $400 billion to their foreign assets in 2008.
That isn’t bad for a region whose total GDP was about $400 billion as recently as 2003 (see the IMF).
It is also a reminder that the institutions that manage the Gulf’s foreign assets will do more than determine the size of some investment bankers’ bonuses. They increasingly will shape global capital flows.
The graph showing the estimated overall increase in the GCC’s assets also shows the estimated inflows into individual funds. That is my little contribution to increasing global transparency.
Each of the big Gulf funds is worth getting to know a little bit better.
SAMA is the Saudi Arabian Monetary Agency. It now has around $365 billion in foreign assets — and manages additional funds for the Saudi pension system. Its asset allocation isn’t disclosed, but it is likely to be the most conservative of the big Gulf funds.
ADIA is the Abu Dhabi Investment Authority. It has a revamped, but still not very informative website. SAMA isn’t as slick, but it releases more data – and the Saudis aren’t known for their transparency. Business Week’s profile of ADIA has far more information than the web site). That said, we now pretty much know that ADIA doesn’t have as much money as some investment banks are claiming. The IMF’s Moshin Khan has said as much. So has Abu Dhabi’s emir– Sheik Khalifa. He is among the few who certainly knows ADIA’s true size. Unless someone has better information (or believes that Sheik Khalifa is understating ADIA’s size), I would argue that journalists should stop using $825 billion as an estimate for ADIA’s size — let alone the $1.25 trillion estimate sometimes thrown around. It is very big — especially given Abu Dhabi’s small population — but not quite that big. There is a risk that the Setser/ Ziemba estimate ($650b at the end of 2007) may be a bit on the high side. $250 billion was bandied about a little less than two years ago.
QIA is the any website”>Qatar Investment Authority. It isn’t a beacon of transparency. Don’t look for a website. But as a result of the QIA’s stake in Barclays, we now know that the QIA’s chairman (and Qatar’s Prime Minister) , Sheik Hamad, often invests alongside the QIA for his personal account. Sheik Hamad’s fund — Challenger — is putting $1 billion into Barclay’s; QIA is putting in a bit more — up to $3.4 billion. Sheik Hamad’s co-investment is consistent with a lot of the informal “color” about the Gulf. The dividing line between a sovereign wealth fund and the sovereign’s personal wealth sometimes isn’t completely clear.
KIA is the Kuwait Investment Authority. It also has revamped its website — and it provides a bit more information than ADIA. Like ADIA, it doesn’t disclose data on its size on its website. Unlike ADIA, it reports that data to Kuwait’s Parliament. We know it had $264.4 billion at the end of March 2008. That is somewhat less than SAMA’s foreign assets.
Sum it all up though and it is clear that the Gulf had a lot of money even before oil rose to $140 billion. The graph above just shows the estimated inflow into the Gulf funds from surplus oil revenues. It doesn’t include the returns on the Gulf’s existing portfolio.
Such returns aren’t going to be very impressive this year.
But it doesn’t really matter. Not if oil stays this high.
Qatar, which has close to a million inhabitants, had a per capita GDP of around $80,000 in 2007, when oil was about 1/2 its current level. That calculation includes Qatar’s guest workers. But the oil revenue goes to Qatar’s native inhabitants, who number less than 200,000. The per capita income for native born Qataris could be north of $300,000 a year.
Qatar has more oil (and gas) relative to its population than most. But the other Gulf states aren’t doing badly.
Oil, it seems, isn’t much of a curse if the price is high enough.
Brad,
These GCC countries deserve to be cherished. They do not let their countries be inundated by militants, they act very responsibly in financial markets (one upon a time Adia used to paly tyeh FX market like Bank Negara Malaysia, but that was in the 1980s) and, they continue to send their precious commodity to peole who lack the capacity to pay, but isue IOUs. Such pious adherence to the institutions of western markets deserves to ve rewarded with discretion. What the rulers of these countries do for us is quite risky.
Add, good to see some more realistic estimates for ADIA’s funds. No need for the media to assist investment banking sales reps (plus their mates in the research department) in flattering their clients. Somewhere between 400 and 600 bn USD for all the UAE entities I would say. Which is not bad for perhaps 1.5 m citizens/tribal members. But looking at the construction boom, the planes on order etc, UAE (incl Dubai) may be able to absorb some of that money) I am getting more and more optimistic that the OPEC countries will in fact be able to absorb quite a bit of their (not ill gotten) gains during the next five years. Only, US should make sure that that money is spent in the US or Europe, not Asia. Asians did hardly make an effort in Iraq and none in Afghanistan.
By the way, where is David Chiang?
Interesting, but your point about sovereign wealth funds not being too strictly divided from personal wealth investments/funds, could it be because the system of rule itself is so structured?
BTW, Brad, saw your reply in other other posts, would lo9ve to read stephen green ’s works in full but the only websites that offer them as excerpts, often edited…
Rien- not to be standoffish but general asian politeness means I rarely address people by their first names, unless they are around my age or are going by some form of username or have given specific instructions to call them by their first name.
Sorry, brad, bit garbled there
would love to read stephen green’s works in full but the only websites that offer them seem to offer only excerpts and often edited too… as for logan, is that the logan who comments, meaning the comments provide a link to his work?
I cannot give Stephen Green’s work away, alas — and they are not freely available on the Web. Logan from comments is indeed Logan Wright, but now that he is a super-star, he may not drop by as much. His work is also often behind the Stone and McCarthy firewall, tho China stakes seems to be publishing more of it.
Rien — more please. Bank Negara stopped playing the fx market after taking big losses. What prompted ADIA to change (if it did). And how can even a $500b fund with $50b plus inflows avoid playing the fx market in some way or another?
As for ADIA’s size, don’t declare victory too quickly. Morgan Stanley’s $825b estimate is cited far more often than Gerald Lyon’s smaller estimate (or the Setser/ Ziemba estimate, which could easily be too high)
Brad,
BkNegara once had a guy called Krieger (Asssie, ex BT Australia) He used to take interesting positions until he started to lose serious money, the Malaysians audited him properly and revised option valuations allegedly did the rest. Long time ago, late 1980s. In those days ADIA had the reputation of generating market-influencing orders (you are right, if a large portfolio needs to adjust FX cover, amounts can be large) No idea if anything was considered untoward. But. ADIA had a mix of young, talented locals plus very experienced westerners. Aparently they treated staff well enough to keep agency problems at bay. The current deluge of money should be a challenge to their investment model though.
Brad,
Great work on the growth analysis of these gulf funds, it is fascinating to see that Saudi Arabia has much to gain from the rise in oil prices. Another interesting trend that I am starting to notice is joint wealth funds, where one fund will pair with another sovereign fund to invest.
Nowing how many dollars is held by SWFs and central banks is soon as uninteresting as knowing how many dollars the Fed can print during one day.
The answer is – an infinite number, any usage of this potential will just destroy the dollar, that is it. The money exists only as long as it is not used.
Wall Street Examiner hypothesizes that China is “building a multi-year stockpile of various commodities to diversify its trade surplus. Anything that can be practically stored (as metals, grains) is removed from the world markets and stored. Obviously it creates gigantic price distortions. This is why I’m watching China, at some point I expect the consumption of industrial metals by China to slowdown dramatically as they shift from imports to enormous domestic stockpiles. In fact I think China can easily continue to grow for some time without importing any industrial metal at all. Zero.”
I’d be interested in your thoughts regarding this theory. To me, the price distortions would seem to make this approach a mistake for the Chinese as they are costing themselves money as their demand drives prices up. On the other hand, they will suffer on their holdings of Treasuries eventually.
Brad – great post and graph.
I think though that KIA’s website doesn’t respond to any new PR move. Its always been one of the more complete of the SWF websites (something that’s been rather helpfu in the past as has the tendency of Kuwaiti parliamentarians to leak KIA’s assets to the press). They even include information on benchmarks (which is rather rare) for their counterparts.
The real question in my mind with Abu Dhabi is now how its assets on a stock and flow basis are distributed between different investment vehicles (ADIA, ADIC, Mubadala and others)
But it seems pretty clear that with oil at $140 there’s plenty of money to spend a lot at home and a lot abroad.
Good post, Brad.
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