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  SPIEGEL Interview with the Head of the Kuwait Investment Authority: 'We Are Being Punished'

SPIEGEL Interview with the Head of the Kuwait Investment Authority 'We Are Being Punished'

Part 2: 'Europe Will Lose Its Global Weighting, America Will Remain Stable'

SPIEGEL: How exactly does it work with you and your colleagues with other SWFs: Do you coordinate things, talk to each other?

Al-Saad: We meet occasionally, at the World Economic Forum or the annual meetings of the International Monetary Fund (IMF). Then we exchange views or discuss our assessment of the markets. But there are no strategic consultations.

SPIEGEL: In other words, it's pure coincidence that you and your colleagues invested almost simultaneously in fallen US banks, such as Citigroup or Merrill Lynch?

Al-Saad: Yes, these companies lost huge portions of their value as a result of the financial crisis. In January, we thought to ourselves: We are now in the eye of the storm, and this is an outstanding opportunity. Apparently others were thinking the same thing.

SPIEGEL: But it was wrong.

Al-Saad: Yes, the timing may been wrong but not the investments. We strongly believe that these assets are grossly undervalved and have tremendous upside potentials.

SPIEGEL: A costly mistake. You invested $5 billion and lost 30 percent, close to $1.5 billion, within three months.

Al-Saad: It's always difficult to find just the right moment. We are long-term investors. We are interested in seeing our investments develop favorably over many years.

SPIEGEL: But even for a long-term investment, it does make a difference when you pay $1.5 billion too much for it.

Al-Saad: Yes, that's true. But people forget that we bought preferred convertibles that earn us interest: nine percent with Merrill Lynch, and seven with Citigroup. Those aren't exactly bad returns. Besides, the banks' offers happened to be in January, and there were no other opportunities after that.

SPIEGEL: But wasn't there also political pressure from the United States that prompted you to make the investment?

Al-Saad: No, these were purely economic considerations.

SPIEGEL: How do you and your colleagues with other SWFs feel about Germany?

Al-Saad: Honest answer?

SPIEGEL: Yes.

Al-Saad: We are very surprised by the Germans' fear of SWFs. We have been in Germany for more than 45 years. We have excellent, decades-old relationships, especially with banks. And in a year-and-a-half, there has been such a backlash towards SWFs’ investments. Now we feel unwelcome.

SPIEGEL: Surprised is a very diplomatic way of putting it. You were -- and still are -- disturbed by what is happening in Germany.

Al-Saad: We were surprised. After all, there was absolutely no reason for the sudden reservations.

SPIEGEL: Will you discuss this with the German finance minister during his upcoming visit?

Al-Saad: If he brings up the issue, we can discuss it openly and honestly.

SPIEGEL: Are the German reservations about SWFs already influencing your investment behavior?

Al-Saad: No, not yet. But we are very concerned. Who knows where this will lead, and whether it will restrict the global flow of capital. What would happen if we would only behave the way other, active shareholders do? If, for example, we demand a seat on the supervisory board at Daimler and rain on management's parade?

SPIEGEL: You could tell us.

Al-Saad: There would probably be a public outcry.

SPIEGEL: What do you think the consequences would be?

Al-Saad: We still consider Germany an economic anchor in Europe, even in the world. We still like to invest in Germany. But in the future, any regulations on SWFs in Germany could limit our engagement in your country.

SPIEGEL: Does this fear of SWFs exist in other countries, as well?

Al-Saad: Yes, it also exists in France and the United States -- probably even more so than in Germany, even though there has not been a single conflict with an SWF in those countries. Nowhere. The presumed threat is based on "ifs" and "whens" and "assumptions."

SPIEGEL: You feel unfairly treated for this reason.

Al-Saad: No. But we are being punished for something that we haven't done.

SPIEGEL: Let's talk about your investment interests. Are you currently taking a close look at the financial industry?

Al-Saad: Of course. The industry has lost a great deal of value in the course of the financial crisis.

SPIEGEL: In Germany, you could currently bid on IKB, and Postbank is also up for sale. Even the owners of Dresdner Bank would surely be willing to talk if the price was right.

Al-Saad: We don't want to buy an entire bank. What would we do with it? We're not bank managers, we're minority shareholders. We buy stocks that have fallen considerably, and that we believe will develop favorably.

SPIEGEL: What do you have your eye on?

Al-Saad: We are simply and generally seeking opportunities, even for larger stakes. The financial crisis has already left behind a few good opportunities, also in Germany and Europe. A few stocks have fallen considerably.

SPIEGEL: Doesn't your interest in Germany and Europe also have something to do with the strong decline of the dollar?

Al-Saad: No, on the contrary. We're concerned about the strength of the euro.

SPIEGEL: Why?

Al-Saad: We believe in cycles in the economy and in currencies. One euro at $1.60 will not be sustainable. That's why we are in fact less interested in investing in Europe at this time, unless there are true values and the price is attractive.

SPIEGEL: Sometimes economies also drop out of the cycles. Take Argentina, for instance. It was once one of the world's wealthiest countries. But more than three decades ago a gradual decline began, which ended in collapse in 2001.

Al-Saad: If you give the example of Argentina, then you have to look at the case of China, which was, at a point in time, the world's largest economy and dominant power. The United States is experiencing the worst crisis I have seen in 28 years in this profession. But it is still the largest economy in the world. The Americans are also more dynamic and flexible than Europe. And, the United States has a much better demographic profile, which can refuel growth.

SPIEGEL: In other words, you don't believe that the United States will lose its dominant economic position.

Al-Saad: I believe that China and India will continue to lead global growth. Europe, due to an aging population, will lose its global weighting over the long term while United States will remain stable.

SPIEGEL: Mr. Al-Saad, we thank you for this interview.

Interview conducted by Bernhard Zand and Wolfgang Reuter.

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