Wednesday, September 16, 2009 1 comments ++[ CLICK TO COMMENT ]++

I thought sovereign wealth funds were swimming in cash

One of the thoughts that was popularized last year, and early this year, was the belief that sovereign wealth funds (SWF) would come to the rescue of troubled, capital-short, institutions. Well, it appears some of those funds weren't exactly swimming in cash as they were commonly portrayed.

Bloomberg has a nice story on Istithmar World, Dubai's soverign wealth fund, detailing the possibility that it may liquidate. Istithmar World is not as big as the SWFs of Singapore or China, but I wonder if it is a sign of things to come—or is this an isolated case? Unlike the widely held view that SWFs use cash, it seems Istithmar World used debt (hence it was more like a private equity fund than a mutual fund or a government institutional fund.) I'm not sure if the SWFs of China/Singapore/etc use a lot of debt.

Dubai investment firm Istithmar World may be the first sovereign wealth fund to liquidate after a $27 billion spending spree financed largely with borrowed money, people briefed on the matter said.

Unlike government-controlled funds in Kuwait and Abu Dhabi, flush with cash from oil production, or in China, backed by export earnings, Istithmar fueled purchases such as the takeover of Barneys New York by borrowing as much as 90 percent of the money, the people said. Istithmar’s parent, Dubai World, tapped Middle Eastern and European banks including Barclays Plc, Royal Bank of Scotland Group Plc and Deutsche Bank AG, leaving those three with combined debt holdings of at least $1.5 billion, the people said.


The fund bought a stake in Perella Weinberg Partners, the boutique advisory firm run by Joseph Perella, and two of Manhattan’s most exclusive hotels, the W Union Square and the Mandarin Oriental at the Time Warner Center. It acquired the Queen Elizabeth 2, the Cunard Line flagship for more than three decades, with plans to convert it into a hotel to be moored beside the emirate’s Palm Island.

Istithmar also bought stakes in Cirque du Soleil, the Montreal-based company known for staging extravagantly acrobatic circus-like performances around the world, and Yacht Haven Grande, a marina complex in the Caribbean catering to so-called mega- yachts.


Many of the deals have soured.

Barneys is in talks with creditors about a restructuring or bankruptcy. Loehmann’s Holdings Inc., a discount retailer with more than 60 stores that was acquired by Istithmar in 2006, had its junk- rated debt rating cut three notches last week by Standard & Poor’s, based on “poor” operating performance.

Shares of GLG Partners Inc., a hedge fund with offices in New York and London in which Istithmar bought a 3 percent stake, have lost more than 61 percent of their value since the deal was announced in June 2007.


1 Response to I thought sovereign wealth funds were swimming in cash

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