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Tue 26 Feb 2008 09:38 AM

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Credit crunch opening door to wealth funds

Western regulators now more keen on attracting Gulf wealth funds, Borse Dubai exec says.

Credit crunch opening door to wealth funds
OPENING DOORS: Citigroup is one of several US and European banks that has courted investment from Gulf wealth funds in the aftermath of the subprime crisis. (Getty Images)

Facing a credit crunch in their financial markets, western regulators are now more keen on attracting Gulf Arab sovereign wealth funds, Borse Dubai Chairman Essa Kazim said on Monday.

He said the credit crisis, which has fuelled fears of a global economic slowdown, has forced western regulators to set aside their scepticism about attracting investment from sovereign funds from the Middle East.

"Now that Europe and America are in a liquidity crisis, in our dialogue and meetings with some of the high authorities they are welcoming sovereign wealth funds very strongly," he said.

"Six months ago the situation was a bit different," he told participants in the Sixth Developing Markets Forum in Cairo.

Propelled by sky-high oil prices, Gulf Arab state-owned companies and sovereign wealth funds enjoy massive excess liquidity to help them expand in the West.

Take Borse Dubai for instance. This month it should close a $4.9 billion deal with the Nasdaq Stock Market to buy Nordic and Baltic stock exchange operator OMX. Under the tie-up, Borse Dubai also takes ownership of Nasdaq's 28% stake in the London Stock Exchange (LSE).

Kazim said Western regulators in the past were cool about attracting Middle East sovereign funds.

"These economies in the western world claim they abide [by] the books and rules... But to our surprise when we sat with one of the regulators there, they told us 'We have written rules and unwritten rules'," he said.

"Whether it is a disciplined company or not, being from the Middle East you [used to expect] some sort of resistance."

David McCormick, a senior US Treasury official, said this month sovereign wealth funds can be a stabilising factor by helping recirculate investment funds. He cautioned about the potential impact of restricting them.

Scepticism, however, still exists. A poll released last week found that the majority of Americans fear the US economy and national security could be hurt if these funds put more money into US companies.

US voters, do not want these funds, which manage between $1.9 trillion and $2.9 trillion, to buy stakes in high tech firms, banks, oil and gas companies and ports, a study by the business advisory group Public Strategies showed. (Reuters)

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