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Tuesday, January 15, 2008

Who's Afraid of Mideast Money?

FROM BusinessWeek by Emily Thornton and Stanley Reed. January 10, 2008, 5:00PM EST

Pounding is more like it. Sovereign wealth funds from the Persian Gulf are changing the face of global finance in ways that unnerve many Westerners. In recent months Gulf funds have bought large chunks of Citigroup (C), the private equity giant Carlyle Group, semiconductor heavyweight Advanced Micro Devices (AMD), planemaker European Aeronautic Defense & Space (EADS), and many other big companies. Gulf funds are also getting into leveraged buyouts, sometimes alongside private equity firms and sometimes by themselves—despite having little experience operating companies. "Large sovereign wealth funds have become major players in private equity, not only as investors but also as competitors," says David Rubenstein, a founder of Carlyle, which sold a 7.5% stake to an Abu Dhabi fund in September. Soon, says Gregory A. White, managing director at Thomas H. Lee Partners, "they will be the industry. We will be working for them."

Six Gulf states—Abu Dhabi, Dubai, Kuwait, Oman, Qatar, and Saudi Arabia—account for nearly half of the world's sovereign wealth fund assets. They control some $1.7 trillion, as much as all of the hedge funds in the world and more than the $1 trillion private equity industry—and Morgan Stanley predicts the total will grow by about $400 billion annually over the next several years.

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