Abu Dhabi insists sovereign investments are not ‘foreign policy tool’

In a letter to the US government, Abu Dhabi argues its sovereign wealth fund, the Abu Dhabi Investment Authority, should be treated like any other US pension funds and not unfairly discriminated against.

The Abu Dhabi government has sought to reassure the US over the growing influence of sovereign wealth funds insisting it would not use its investments as a “foreign policy tool.”

In a letter to US Treasury Secretary Henry Paulson, dated March 12 and appearing in the Wall Street Journal, Abu Dhabi’s international affairs director Yousef Al Otaiba said the United Arab Emirate government had “never” and would “never use its investments” to exert control over foreign assets for political ends.

Abu Dhabi’s sovereign wealth fund, the Abu Dhabi Investment Authority, is one of the world’s largest funds with an estimated size of between $500 billion (€316.5 billion) and $900 billion.

However, Otaiba said ADIA should be treated like US pension funds arguing the aim of the fund was to invest Abu Dhabi’s oil reserves for the future benefit of its people: “Investment income is used to improve education, health care, social programs, infrastructure and security.”

There has been a growing backlash against sovereign wealth funds over the past six month, especially in California where legislators are attempting to prevent the country’s two largest pension schemes, the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), from investing in private equity funds and firms partially or wholly owned by some sovereign wealth funds.

That legislation, introduced in February, would bar the $240 billion and $173 billion plans’ ability to invest in future funds operated by the likes of Carlyle and Apollo. In 2007, two arms of the Abu Dhabi government bought stakes in Apollo Management and Carlyle.

In his letter, Otaiba suggested foreign investors that “played by the rules,” such as ADIA, should not be discriminated against. He went on to say that while additional scrutiny of sovereign wealth funds was acceptable in terms of national security, it should also be “clear, fair and timely.”