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Sovereign wealth funds: Gulf state funds’ new look

Middle Eastern sovereign wealth funds are still in fashion but the look has changed.

At $23 billion in the first eight months, the total volume of acquisitions by Middle Eastern sovereign wealth funds so far this year is some $7 billion more than in the same period last year, according to Dealogic. Nevertheless the number of deals fell year on year from 23 to 19, suggesting state buy-outs were more targeted.

"Middle Eastern sovereign wealth funds went through a bargain-hunting phase earlier on in the crisis, but now they’re more focused on strategic acquisitions. Being cheap is not enough any more," says a senior investment banker in the Middle East.

The funds have encountered losses thanks to the crisis, so due diligence has become more thorough. Influence in corporate governance is more likely to be exerted to safeguard investment. This is easier than before, when western politicians could afford to view sovereign funds with suspicion. These funds have played a part in keeping the global financial system afloat, after all.

As an example, in August Qatar invested $7.11 billion in German car firms Porsche and Volkswagen. Qatar Holding, the strategic and direct-investment arm of the Qatar Investment Authority, had targeted Porsche for some time. Qatar wanted to benefit from an expected increase in demand for high-end automobiles.

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