[Opinion] Gulf Fund

Global investment banks on Wall Street are watching their international fame and pride fall these days. Their treasures have almost hit rock-bottom amid the subprime mortgage crisis. Now, they are almost begging anyone with enough cash to inject them with money. Cash-rich Middle Eastern countries are answering the call. The Gulf Fund is now buying stakes in cash-strapped American investment banks.

Oil-producing countries in the Persian Gulf created the Gulf Fund. Ownership consists of Saudi Arabia, Kuwait, Oman, Qatar, the Abu Dhabi Investment Authority of Arab Emirate and Dubai. Member states have raised about 1.7 trillion dollars, constituting half of global funds. The fund has lent 7.5 billion dollars to Citigroup at an annual rate of 11 percent. Merrill Lynch is looking for an investor who can cough up 4 billion dollars. Saudi Arabian prince Al Walid, who owns 3.97 percent of Citigroup, pulled some powerful strings in forcing the retirement of the former CEO last November.

The Korean national fund, Korea Investment Corporation, has turned down investment solicitations from several international investment banks. The corporation has to obtain the prior consent of its supervising superiors, (i.e. the Finance Ministry, the Bank of Korea), who would have to bite the bullet for any possible loss. On the other hand, its global peers gladly accepted the offers. China Investment Corporation, for example, has invested $5 billion in Morgan Stanley, and Singaporean Temasek bought a stake in Merrill Lynch. On hearing of the news, a Korean financial expert reportedly lamented, “It was a once-in-a-lifetime opportunity!”

Acquiring the shares of these global investment banks means becoming partners with the big shots on the Wall Street. We can learn a lot from them and have our voice heard in the global market. Sources close to the presidential transition committee expect a Middle East fund to make an investment in Korea soon. It is important to entice foreign direct investment. Likewise, it is also important to secure strongholds for domestic funds to tap overseas markets. Lots of Korean investors are still searching for objects to invest in. During the economic crisis in the late 1990s, we painfully sat on our hands and watched foreign investors buy quality Korean companies almost for free. We know how great the power of cash is. Isn’t it time to make up for the losses?

Editorial writer Park Won-jae, parkwj@donga.com