Chrysler Building May Be Wealth Fund Aberration: William Pesek

Commentary by William Pesek



July 23 (Bloomberg) — New Yorkers, perhaps preoccupied by dismal events on Wall Street, didn’t seem too aggrieved by foreigners buying the iconic Chrysler Building.

The Art Deco giant that helps define the skyline was snatched up by an Abu Dhabi sovereign wealth fund on July 8. It was the second purchase of a Manhattan landmark by Middle East investors in as many months. In June, a Dubai fund and Goldman Sachs Group Inc. bought the General Motors Building.

Such purchases would seem to be the latest wave of cash- flush foreigners buying America’s architectural jewels. An earlier wave in the 1980s had Japanese grabbing Rockefeller Center, Universal Studios and Pebble Beach golf course — and generated considerable ire among Americans.

Yet maybe New Yorkers are on to something. Could the purchase of the building that was the world’s tallest until 1931 be more an aberration than the start of a new eyebrow-raising trend? Yes, at least in the medium term.

The reason: Sovereign wealth funds and other pools of affluence created by surging commodity prices are moving their focus more and more away from the West.

“The focus has shifted to emerging markets and Asia where we see better opportunities,” says Sameer al-Ansari, chief executive officer of Dubai International Capital LLC, an asset- management firm with more than $12 billion.

Where Growth Is

Al-Ansari says any investments made in 2008 will be in Asia, where economies are expanding faster than the U.S. or the global average. Dubai International Capital has earmarked $5 billion over the next two to three years for Asia, with particular focus on China and India.

“Asia is where all the growth is — that’s the key issue here,” al-Ansari says. “It’s also a, well, more welcoming region than some others at the moment.”

In June 2006, Dubai’s DP World Ltd., rebuffed in its efforts to manage U.S. ports, announced a $500 million investment to build a terminal in Tianjin, China. U.S. Treasury Secretary Henry Paulson argues that his country is open for business and welcomes investments from the Persian Gulf. DP World’s experience still resonates in a region where petrodollars are amassing at a blistering pace.

Growth in Asia is zooming along with rising energy and food costs and a global credit-market crisis. While risks abound, the Asian Development Bank expects East Asia to grow 7.6 percent in 2008 and next year. Such growth rates explain why al-Ansari says “Asia is, quite simply, the place to be.”

Oil Money

It hasn’t been lost on sovereign wealth managers that some headline-grabbing investments in the U.S. have been money losers. China may regret its $3 billion investment in Blackstone Group LP and $5 billion stake in Morgan Stanley. Ditto for Singapore, which invested $5 billion in Merrill Lynch & Co.

It’s a business story that simultaneously encapsulates the shifting of economic power from West to East; the oil business; geopolitical squabbles; hubris in all its forms; and insecurity about the future. The Middle East’s oil money does just that.

Financial troubles at Fannie Mae and Freddie Mac show just how deep the crisis has gone since it began with U.S. subprime loans. Central banks in Asia and the Middle East, cumulatively holding trillions of dollars of currency reserves, are losing money on U.S. assets.

The administration of U.S. President George W. Bush, meanwhile, is treating the crisis with an odd mix of free-market ideology and financial socialism. On the one hand, the White House is avoiding new regulations to crimp Wall Street’s excesses. On the other, it’s doing much of what it criticized Asia for doing a decade ago.

Treating Symptoms

During Asia’s crisis, economies devalued currencies, lowered interest rates, boosted public spending and bailed out institutions deemed vital to stability. The U.S. is doing all these things and treating only the symptoms, not the causes.

One key cause is a lack of transparency. The U.S. has long preached the gospel of openness to avoid the kind of corporate malfeasance that catches investors off-guard and dents confidence in economies.

A lack of transparency is one of the criticisms tossed at sovereign wealth funds in the Middle East and Asia. Paulson has called on them to take steps to “allay concerns about opacity” so that industrialized nations will welcome their money.

One could say the same of Wall Street. The implosion of Bear Stearns Cos. reminds investors of how other household-name U.S. companies collapsed earlier this decade. Markets are left wondering what good is transparency when companies perceived to be open can still hide fraud or massive risks.

Now, as investors fret about the fate of investment banks such as Lehman Brothers Holdings Inc., concerns about transparency can’t be dismissed. With the merits of American- style capitalism being reconsidered as rarely before, Asia will be a clear beneficiary.

“The world is changing fast,” al-Ansari says. “When we think about where the real growth will be in the years ahead, we are very much looking to Asia.”

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at [email protected]


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