SOVEREIGN wealth funds are heavily reining in their investment in risky new deals because they are sitting on huge losses from bets made during the crisis, according to three senior investment banking sources.
In aggregate, sovereign wealth funds have lost a staggering $62bn of the $90bn in capital they plunged into financial stocks in 2007-2008, according to number crunching done by Citigroup.
In particular, Middle Eastern funds are lowering their risk appetite. The shaikh of Abu Dhabi, Khalifa bin Zayed Al Nahyan, is trying to reign back some of the city state’s numerous funds, according to one senior source.
Aabar Investments, one of Abu Dhabi’s sovereign funds, recently bought into UniCredit’s rights issue, but one of the underwriters said the phenomenon is “extremely rare at the moment” and that the fund had already lost a slew of money on its shares in the Italian bank.
Bankers are instead having to work harder to get sovereign money into deals. “It used to be like bringing them a menu,” said one senior banker, adding that Middle Eastern funds used to give out specifications and commission bankers to bring them investments, something they have scaled back. Another said there is still interest in lower-risk infrastructure projects, but much less in financial stocks.
