The new kid on the block: Istithmar, the investment arm of conglomerate Dubai World
DIC looks to spread its investment wings: DIC, international investment arm of conglomerate Dubai Holding
More on the Qatar Investment Authority
THINK OF INVESTMENT agencies in the Middle East and a few names spring immediately to mind: Abu Dhabi Investment Authority (Adia), Kuwait Investment Authority and Qatar Investment Authority. Combined, these funds are fast approaching the $1 trillion assets under management mark.
Compared with these three, Dubai’s main investment vehicles, with less than $50 billion of assets, are small. But recent events suggest that it will soon be possible to add Dubai International Capital (DIC), Dubai Investment Group (DIG) and Istithmar to a list comprising the most powerful institutional investors in the world. Over the past few years, the three Dubai funds have become voracious buyers of assets in all regions across all asset classes but especially in private equity, real estate and public equity.
In their short existence – Istithmar and DIG were created in 2003, DIC in 2004 – the three funds have invested in blue-chip companies including DaimlerChrysler, Time Warner and Standard Chartered; prime real estate in the US, UK and Middle East; emerging markets assets such as SpiceJet, Bank Islam and Bank Muscat; and in funds run by private equity houses such as KKR, Carlyle and 3i.
Just last month, Istithmar added to its burgeoning portfolio by buying the Mandarin Oriental Hotel in New York and two business parks in London that took the value of real estate owned by the company in the UK to more than $1 billion. At the same time DIC hit the headlines through its sale of the Tussauds Group to Blackstone for £1.03 billion ($2 billion), while retaining a 20% stake in the company. The trade represents a profit of £200 million for DIC in two years.
DIC also sold some of its stake in DaimlerChrysler last month, although the company declines to provide details. The carmaker's shares were 72.5% higher than when DIC bought them in January 2005.
Clearly these are investors with substantial clout in the international financial markets that will become even more influential. But who exactly are they and how do they fit together?
DIC and DIG are the investment vehicles of Dubai Holding, a conglomerate whose portfolio stretches across technology, communications, tourism, industrial manufacturing, energy, health and education, biotechnology, real estate, hospitality and finance. Its companies include Dubai Media City, Dubai Internet City and Jumeirah Group.
Traditionally, DIG has invested in hedge funds, real estate and financial services, and DIC has targeted private equity (both directly and through third-party funds) and large-cap public companies, such as DaimlerChrysler.
Istithmar is the asset management arm of Dubai World, whose portfolio includes development, marine services, commodities, ports and free zone divisions. Its most high profile company is Dubai Ports, which controversially bought the UK’s P&O in 2005 for $3.9 billion. Istithmar predominantly invests in direct private equity and real estate, although it has taken stakes in public companies such as Time Warner and Standard Chartered through complex leveraged structured transactions.
There are subtle differences and similarities between the three. Dubai Holding is a company that belongs to His Excellency Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai. As such DIC and DIG are predominantly his private investment vehicles (although DIC also acts as a third-party money manager for other funds). So their ultimate aim is wealth preservation for their shareholder.
Dubai World, in contrast, is a government-owned company. Istithmar’s role, therefore, is to create wealth for the emirate. Unlike Abu Dhabi, Dubai has limited oil reserves. So the government needs to find other ways to source and generate wealth.
To an extent, all three companies are competing over similar investment opportunities. DIG and Istithmar, for example, have investment in real estate and financial services as core parts of their strategy. DIG and DIC both have departments that invest across asset classes in the Middle East and North Africa. DIC and Istithmar have bought into publicly listed blue-chip companies.
Indeed, DIC and Istithmar adopted a similar financing structure for their most notable public equities investments – in DaimlerChrysler and Time Warner.
In each instance, the funds bought equity-linked notes via a derivative that gave them economic exposure, although not any direct influence, to the companies in which they invested. In essence, they invested via zero coupon bonds with a call option attached. Down-side performance protection is also included in the structures.
The structures provide two advantages to the funds: they enable them to leverage up their stakes in their investments, and they are capital guaranteed.
It is unclear how much communication there is between the three investment groups or how much attention they pay to each other. Sameer Al Ansari, DIC’s executive chairman, reckons that 80% to 90% of what DIC does is different from DIG’s business.
Ultimately, all three have the same aim as any other investor: to achieve exceptional returns.
The new kid on the block: Istithmar, the investment arm of conglomerate Dubai World
DIC looks to spread its investment wings: DIC, international investment arm of conglomerate Dubai Holding