SPIEGEL Interview with the Head of the Kuwait Investment Authority: 'We Are Being Punished'
Sheikh Bader al-Saad, head of the Kuwait Investment Authority, discusses Western fears of the increasing power of state-owned sovereign wealth funds, the global finance crisis and mistakes his fund made in investments at Daimler, Citigroup and Merrill Lynch.
The Kuwait Stock Exchange: "One day someone woke up in the morning and considered this to be a threat, a danger."
SPIEGEL: Mr. Al-Saad, do you know how many billions of dollars your fund is currently worth?
Al-Saad: If I said I didn't, I would lose my job.
SPIEGEL: How much is it then?
Al-Saad: By law, I'm not permitted to tell you that. The finance minister's office is at the other end of the corridor. He is the only one who is authorized to release that information.
SPIEGEL: The last time he stated a figure for the fund's volume was in March 2007, when he said it was worth $213 billion (138 billion).
Al-Saad: That's absolutely correct.
Al-Saad: That's what you think. But it's not true. The Fund for Future Generations continues to receive 10 percent of all state revenues.
SPIEGEL: Then what happens to all the petrodollars? Kuwait's oil revenues have increased dramatically by close to 40 percent in the last year, simply because the oil price has risen from $70 to $120 a barrel.
Al-Saad: Our budget is growing by 40 percent as well, from 12 Kuwaiti dinar (28.9 billion, $45 billion) to 17 billion. Most of that money was used to offset the deficit in the social security systems.
SPIEGEL: Nevertheless, you manage an unimaginable fortune -- and yet it is only about a tenth of all of the assets managed by the sovereign wealth funds (SWF). Western politicians increasingly see these enormous sums of money as a threat, which they hope to diminish through regulation. Can you understand this?
Al-Saad: No, not at all. You've certainly spoken to your politicians. Tell me, what is their concern?
SPIEGEL: Their fears are essentially threefold. First, you could buy your way into the German infrastructure -- that is, the natural gas network or electricity grid ...
Al-Saad: ... and then exert political power.
Al-Saad: Alright, then why don't these politicians simply say that foreign investors are barred from making investments of more than, let's say, 10 percent in the gas network. Then the gas network remains German. Where is the problem? Then you have your protective wall.
SPIEGEL: Political considerations don't play a role in your investment behavior?
Al-Saad: No. We simply want to invest our budget surpluses for future generations. You don't have to be afraid. We are the ones who should be worried about our money, not you.
SPIEGEL: The second fear is that SWFs make investments to steal the know-how of corporations, so that they can copy their products at home.
Al-Saad: I don't understand why an SWF should be any more interested in this than a private investor. In fact, in the past the SWFs were always the more reliable partners of the companies and countries in which they were invested. Would you like some examples?
SPIEGEL: Yes, please.
Al-Saad: Who instigated the devaluation of the British pound in 1992-1993, causing considerable turbulence in the international financial markets?
SPIEGEL: George Soros.
Al-Saad: Now was that an SWF? And look at Bear Stearns. Whose fault was it that thousands of shareholders lost their money? Was it an SWF?
SPIEGEL: No. Nor was the Asian financial crisis triggered by SWFs. In that case, it was wild speculators in Western investment banks. And it was exclusively private investors, mostly from the West, who were involved in the LTCM hedge fund, which sent the financial world on a roller-coaster ride a year later. That's true, but ...
Al-Saad: ... one but. There are thousands of examples, and not one of them is the fault of an SWF. But one day someone woke up in the morning and considered this to be a threat, a danger.
SPIEGEL: SWFs only recently become large enough to gain real market power, especially if they coordinate their efforts and act in concert. It is estimated that all the SWFs together manage up to between $2 and $3 trillion. With only one-third of that money, you and your colleagues could buy every company listed on Germany's stock exchange, the DAX.
Al-Saad: But that's precisely what we are not doing. Look at the Chinese fund, with its $200 billion in assets. Two-thirds of that money is in Chinese investments, especially banks.
SPIEGEL: That may not remain that way.
Graphic: Largest sovereign wealth funds
SPIEGEL: We think that five percent of all managed fund assets worldwide isn't exactly a small amount of money. More important, it's on the rise. We're talking about $10-15 trillion (6.5-9.7 trillion) in 10 years.
Al-Saad: Even if this was the case, you have to see this in relation to the economies of the recipient countries. They too are growing. And the markets are also growing. Besides, we're talking about real money here. It doesn't include a single borrowed cent. No leverage, as with the hedge funds and the private equity firms. Look at Daimler, in which we have invested since 1970. We have never made use of our right to a seat on the supervisory board, and we have always voted with management in the shareholder meetings.
SPIEGEL: Which was a mistake.
Al-Saad: That may be your view. We created stability. We believe that we have a responsibility for the economies in which we are active -- for the workers, the management and the other shareholders.
SPIEGEL: For the sake of the economy and the employees, you should have pushed for the sale of Chrysler long before 2007. After all, it had been clear for years that the takeover had failed and had been weakening the company since 1998, if not bleeding it dry.
Al-Saad: We discussed the issue with management, just not publicly. In retrospect, that was always the most promising approach for us. We don't want to shoot ourselves in the foot.
SPIEGEL: Your friendly activities didn't do much good at Daimler. In fact, a parliamentary investigative panel in Kuwait even addressed the stock's loss of value.
Al-Saad: It was our government auditing office that had criticized the performance. We defended the investment and announced that there would be a strategy shift, that the brand had tremendous value and that the weak stock price was not justified. We were proven right.
SPIEGEL: Why didn't you try to convince the second major shareholder, Deutsche Bank, to support a sale of Chrysler -- instead of looking on as it sold off its Daimler package?
Al-Saad: I met with Josef Ackermann, the head of Deutsche Bank, here in this office and in Stuttgart. He told me: Look, this isn't our core business. We are a bank. We don't know much about cars. That's why they scaled back their investment.
- Part 1: 'We Are Being Punished'
- Part 2: 'Europe Will Lose Its Global Weighting, America Will Remain Stable'
© SPIEGEL ONLINE 2008
All Rights Reserved
Reproduction only allowed with the permission of SPIEGELnet GmbH