The Mideast Money Trail
Oil-rich countries are pouring their petrodollars into Europe
In a city where real-estate prices can be jaw-droppingly steep, One Hyde Park is in a lofty league of its own. Situated in London's affluent Knightsbridge neighborhood-amid exclusive shops and hotels, like Harvey Nichols and the Lanesborough-the residential complex's 86 units will reportedly sell for around $8,000 per square foot; its four penthouses have price tags of nearly $160 million each. The sole financial backer for the $3 billion project? Sheik Hamad bin Jassim bin Jabr al-Thani, Qatar's foreign minister.
Indeed, as an investor, Hamad has been very busy in Europe. He also heads his government's $40 billion Qatar Investment Authority, which owns a 7 percent stake in the French media company Lagardere, is considering buying 10 percent of Airbus manufacturer EADS, and recently was outbid by an Australian bank when the British utility Thames Water was sold for around $16 billion.
But the investment spree isn't limited to just Hamad and QIA. Europe in general-and Britain in particular-are seeing a flood of petrodollars flowing in as the Middle East's oil-rich gulf states look for smart, safe havens in which to invest their massive fortunes. And the amounts they're willing to invest overseas are staggering. British bank Standard Chartered estimates that the region's net foreign assets total between $1.2 trillion and $1.5 trillion, and growing. "When you've got that much money to invest, there are no areas you won't look at, because you want to be diversified," says Steve Brice, chief Middle East economist at Standard Chartered, which itself became an investment target this year, when Dubai fund Istithmar spent $1 billion for 2.7 percent of its shares.
Avoiding America. Certainly a good chunk of gulf money will continue to end up in the United States. But that said, Arab investors are starting to favor Europe over the United States, mainly because of the reaction last year when the government-owned Dubai Ports World bought British ports operator P&O. The $6.8 billion deal included a number of major American ports. A political storm over security worries erupted, forcing DP World to agree to sell the U.S. ports to an American operator. Political fallout like that "seems less likely in Europe and the U.K.," Brice says. London Business School economist Richard Portes agrees: "They're rather wary of the atmosphere in the States. There's a feeling of insecurity for any investor who is Muslim." They've also seen that the United States is willing to use financial embargoes. "They would not expect the British or French to do that."
But why is Britain the repository of choice for Mideast funds? British investment laws are less onerous than those of many other countries in Europe. There's also Britain's colonial history in the Mideast. "These guys speak English as a second language," Portes explains. "They're used to dealing with the U.K. Neither side really trusts the other-but that's OK; they're used to it." Bahrain's Gulf Finance House is, for example, opening a London office charged with scouting for mainly real-estate investment opportunities-largely in Britain but also on the Continent.