Dubai Word Now Has a $5B Stake in MGM Mirage
Wednesday, August 22, 2007PAUL KANGAS: The big deal today is the government of Dubai buying into MGM Mirage. It`s a $5 billion investment being made by Dubai World. As Darren Gersh reports, these types of investments by so- called sovereign wealth funds are growing fast and politicians and policymakers are taking notice.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Las Vegas loves a high roller and the government of Dubai`s investment fund has the money to lay down big bets. Its $5 billion stake in MGM Mirage and the new city center development is a small fraction of the United Arab Emirate fund`s estimated annual cash flow. Trade expert Gary Hufbauer says Dubai and many other foreign governments have so much cash, they need to invest it in the United States.
GARY HUFBAUER, SENIOR FELLOW, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: You know, they pump out more oil and more money than they can possible use, even though Dubai is filled with construction cranes.
GERSH: Sovereign wealth funds are government-controlled investment companies financed with oil revenues or foreign currency reserves. Dubai and the other Arab Emirates may have the largest fund, worth up to $875 billion. Next up is Singapore with around $330 billion, followed by Norway and China. Altogether, the top 20 funds may have as much as $3 trillion invested around the world. And that amount is growing fast, some 20 percent a year. Analyst Alan Tonelson says with such deep pockets, it`s easy to see how sovereign wealth funds can have a big impact.
ALAN TONELSON, RESEARCH FELLOW, US BUSINESS AND INDUSTRY COUNCIL: When U.S. companies have to compete against rivals who are funded by these funds, they are competing not only against another private company, they are competing against a foreign treasury.
GERSH: Todd Malan represents foreign companies with investments in the United States. He says sovereign fund investments help create jobs.
TODD MALAN, CEO, ORGANIZATION FOR INTERNATIONAL INVESTMENT: That doesn`t mean we shouldn`t be careful and that doesn`t mean that we shouldn`t screen these investments and look at them and hold them up to the light of our protecting national security.
GERSH: Some sovereign wealth funds argue they act like any other pension fund, providing financial stability by investing for the long haul. The problem Hufbauer says, is that some funds are highly secretive.
HUFBAUER: This is kind of unnerving I think to the United States, to the Congress, maybe to some Americans that there are these very large, foreign official investors in this country who may have a mixture of motives.
GERSH: And a mixture of success. Many sovereign wealth funds have shown a tendency to overpay for trophy investments. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
