Abu Dhabi multiplies investment arms

On the surface, a luxury German carmaker, an English football team, a New York landmark and a troubled British bank may seem to have little in common. But in the Gulf, each one has come to represent the increasing ambitions of Abu Dhabi.

Daimler, Manchester City, the Chrysler Building, and Barclays are among a growing list of global assets that have been the target of a multibillion shopping spree by various state entities acting on behalf of the oil-rich emirate. Some $15bn has been invested overseas by the emirate’s funds in the past six months.

As Abu Dhabi entities are more aggressively courted by international companies desperate for capital during the economic crisis questions have been raised about the extent of co-ordination between the various funds and also whether the diversity heightens the risk of Abu Dhabi overplaying its hand.

Abu Dhabi, richest of the seven city-states in the UAE

Some financial analysts see the burgeoning stable of investment vehicles – there are at least eight of them – not only as a reflection of different strategies but also an illustration of the influence of the various members of the ruling al-Nahyan family and their lieutenants.

Analysts consider the more traditional investors, such as the Abu Dhabi Investment Authority (ADIA), as falling under Sheikh Khalifa bin Zayed al-Nahyan, the president of the United Arab Emirates and Abu Dhabi’s ruler.

The more interventionist funds are more closely associated with his younger half- brother and crown prince, Sheikh Mohamed bin Zayed. He is considered the architect of Abu Dhabi’s more ambitious development in recent years, including in tourism and culture, and is dubbed the chief executive officer of Abu Dhabi Inc. He is chairman of Mubadala, a highly visible investment vehicle, and the executive council, the emirate’s key policymaking body.

Meanwhile, Sheikh Mansour, the ambitious 38-year-old full brother of the crown prince, appears to be acting at times in his personal capacity but at others as part of Abu Dhabi Inc. He bought Manchester City and is chairman of the International Petroleum Investment Company (IPIC) – the most active of the funds recently.

“If you want to optimise you need some sort of transparency and clarity on who does what,” says an Abu Dhabi-based banker.

A similar trend in nearby Dubai in recent years generated fierce competition between government-backed investment funds, which went on a borrowing spree to grab high-profile deals but contributed to the emirate’s recent financial woes.

Government officials in Abu Dhabi, the richest of the seven city-states in the UAE, play down the concerns, and hint that there is a higher council that keeps track of all investments by the various vehicles.

“All these companies are implementing our bigger picture, which is to leverage our experience, our money and our success,” says one official. “If we have two world class companies doing this work from Abu Dhabi, what is wrong with that?”

Just a few years ago, ADIA – thought to be the world’s largest sovereign wealth fund – was the focal point of businessmen and political delegations who headed to the wealthy emirate in search of a deal.

But as the emirate has embarked on a massive development plan it has cloned its best creation, to produce a multitude of investment vehicles hungry for overseas deals.

The conservative ADIA takes small stakes in largely listed companies and rarely creates noise about its deals – the exception was its ill-fated $7.5bn investment in Citigroup in November 2007.

Some of the newcomers are bolder.

One of the most notable changes has been the activity of IPIC, an old fund that once quietly invested in energy-related businesses but has taken on a new face. Displaying a new aggressiveness, it has spent billions of dollars on investments, including the €1.95bn acquisition of a 9.1 per cent stake in Daimler that it bought through Aabar, another investment company IPIC controls. It also claims the $3.5bn investment in Barclays, even though officials at the time said it was a private investment by Sheikh Mansour. That investment, however, is expected to be soon moved away from IPIC, according to Moody’s, which rated the company this week, and understands that IPIC was merely the vehicle chosen to do the transaction.

But to some the IPIC/Barclays deal illustrates the difficulty understanding the relationships between individuals, the ruling family and the government.

Officials argue that investment vehicles should not be judged as like-for-like entities, with ADIA seen as the “money chest” for the future and concentrating on securing long-term returns without seeking active management in the companies it invests in. Abu Dhabi’s development, the officials say, requires at times more active and nimble vehicles, particularly as the emirate tries to tap into the expertise of international groups and import their technology.

This was indeed the raison d’être of Mubadala, set up in 2002 with a mandate not only to seek a return on investment but also to attract businesses to Abu Dhabi and help diversify the emirate’s economy.

Its early deals included a project to pipe gas from Qatar to the UAE and acquiring a 5 per cent stake in Ferrari. More recently, it teamed up with General Electric to set up an Abu Dhabi-based global commercial financial services company, with each committing $4bn in the joint venture over the next three years.

But Mubadala has a particularly broad mandate and its portfolio stretches across an increasingly wide range of sectors, from health to telecoms, to aerospace and finance. Over the past six months, it has invested in US real estate, hotel and technology companies.

The strategies of several other investment funds are also difficult to pin down. For example, the Abu Dhabi Investment Council was created two years ago to focus on domestic and regional investment. It took in ADIA’s holdings in local assets, including banks.

But it also raised eyebrows with the high-profile acquisition last year of New York’s Chrysler Building and is now deemed to have an international mandate. It has also been linked to the battle for the ownership of the car company Opel.

Bankers in Abu Dhabi expect that after an initial period of activity, the various funds will emerge with more focused strategies.

“Our understanding is there is likely to be a clarification and a clearer segregation of the roles of the different entities during 2009,” says one banker. “I think these things were given a good head start and a brief and people have interpreted the brief … So there is now a need for clarity.”

He argues that the power structure in Abu Dhabi should not be compared with Dubai and its system of competition between an elite group of executives that form an inner circle around that emirate’s ruler.

“In Dubai you have had people competing for the same attention and the same money. Down here you have got a number of people from the same family who need to agree with each other and need to act with a common vision most of the time,” says the banker.