Losses by Gulf Funds may Reach $450b: Deutsche Bank

DUBAI - Losses by Gulf sovereign funds in the global financial turmoil is expected to reach to $450 billion, which is equivalent to the region’s oil income for a whole year, a top executive of Deutsche Bank in the Middle East said.

By Issac John

Published: Wed 24 Dec 2008, 12:43 AM

Last updated: Sun 5 Apr 2015, 11:28 AM

Henry Azzam, Deutsche Bank CEO for the MENA region, said the region’s sovereign wealth funds (SWFs) may not perform well in 2009 after poor 2008 results.

According to recent estimates, the size of the combined GCC sovereign funds stood at well over $1.3 trillion, of which UAE accounts for $875 billion.

Rachel Ziemba of RGE Monitor estimated that the investment losses made by UAE sovereign funds in 2008 totalled more than $155 billion. While Saudi Arabian funds recorded limited losses, Kuwait Investment Authority suffered over $100 billion in losses in 2008. Qatar Investment Authority, which accounts for $60 billion in investments, lost almost half of it on equities and heavy portfolios including UK real estate investments.

Ziemba predicted that funds available to the SWFs would be reduced as a result of diversion of capital from other government sources to offset the withdrawal of private capital at home or abroad.

“The combination of losses on existing portfolios by the more diversified funds along with greater demands for domestic investment either to support current spending or to assume the debts of the private sector, should continue to boost demand for liquidity and the safest assets.”

Azzam, a respected economist, in an interview with CNBC Arabiya said the correction process in the property market might take longer time, or would not end in 2009 if multinational companies and banks in Dubai kept on reducing their workforce even as professionals who buy and rent real estate continued to exit.

On the affects of the current economic climate on the banking sector, Azzam said, “Investment banks are facing problems today, and a possible solution for those banks which have some capital is to acquire weaker commercial banks. With that we’ll create more trade and investment banks.”

According to Azzam the region should focus on key historical lessons and employ tactics to ensure financial growth in 2009. “We must not lose what has been gained during the past twenty years, all of the openness should not go back to closure, on the contrary, we should learn from the crisis, and there should be some smart monitoring and controls employed,” he said.

Based on recent estimates, 28 countries now control more than $2.8 trillion in sovereign funds. Merrill Lynch estimates that such funds may grow to $7.9 trillion over the next three years. Morgan Stanley expects SWFs to reach $12 trillion by 2015.

Following the UAE, which controls largest sovereign funds totalling $875 billion, Singapore and Norway are ranked in the second place with funds totalling $300 billion each. Kuwait and Russia are ranked third and fourth, followed by China with only $68 billion formally dedicated to investments so far. Others include Venezuela with $16 billion, Iran $9 billion.