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."

The Kuwait Stock Exchange: "One day someone woke up in the morning and considered this to be a threat, a danger."

Foto: AFP

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.

SPIEGEL: Let's assume that it's somewhat higher now, perhaps $250 billion (€162 billion). After all, the oil price is at an all-time high. In other words, even more money is flowing into your accounts.

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.

SPIEGEL: Exactly.

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.

Al-Saad: Even if we assume that the numbers are correct and SWFs currently hold assets of between $1.5 trillion and $2.5 trillion, this is still less than five percent of the total assets managed by funds worldwide. It's less than two percent of the assets of US banks, and it's nothing, absolutely nothing, compared to the total value of all marketable securities.

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.

'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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