Abu Dhabi sovereign wealth fund loses $125 billion

In my book, losing a gargantuan $125 billion qualifies you as the dumb money.  This appears to be what has happened at Abu Dhabi’s leading Sovereign Wealth Fund.

I had been warning all throughout 2008 that the Sovereign Wealth Funds were making a big mistake in buying stake in western financial services companies. Now, they are paying the price.

Abu Dhabi Investment Authority may have lost $125 billion last year, pushing the sovereign wealth fund to second place behind Saudi Arabia after the global credit crisis cut asset prices, the Council on Foreign Relations said.

Abu Dhabi’s fund was “hard hit by the recent fall in global equities,” economists Brad Setser and Rachel Ziemba wrote in a report released on the New York-based organization’s Web site. “A high allocation to equities, emerging market and private equity” contributed to the drop.

Erik Portanger, a spokesman for the Abu Dhabi Investment Authority, declined to comment. The Associated Press first reported the estimates yesterday. Abu Dhabi is the richest of seven states that make up the United Arab Emirates.

The worst financial crisis since the 1930s Great Depression has led to almost $1 trillion in losses at banks and financial institutions worldwide, helping drag the benchmark S&P 500 U.S. share index down 39 percent in 2008. Gulf sovereign wealth funds have invested billions of dollars in financial institutions. The Kuwait Investment Authority last January paid $3 billion for a stake in Citigroup Inc. and invested $2 billion in Merrill Lynch & Co. Abu Dhabi’s Investment Authority bought a 4.9 percent stake in Citigroup for $7.5 billion in November 2007.

Remember, this is the people’s money here. $125 billion has gone up in smoke. I see this as true mismanagement of a country’s wealth. I wonder if anyone is going to take the fall for this.

Abu Dhabi Wealth Fund Lost $125 Billion, Council Says – Bloomberg.com


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.