Losses rock the Kasbah

The Associated Press reported that sovereign wealth funds (SWFs) have suffered during the financial crisis as well, according to an advance copy of a Council on Foreign Relations’ (CFR) study, due out today.

CFR estimates that funds of the six-country Gulf Cooperation Council have shed, on balance, as much as $80 billion. That’s despite $300 billion in 2008 oil receipts, although there’s no way of knowing precisely how the GCC funds were capitalized throughout the year or whether oil revenue masked the funds’ performance, good or bad.

Having said that, there have been notable gaffs over the past year or so. SWFs quickly moved into the breach at the onset of the financial crisis, but rather than sweeping up “cheap” shares into their portfolios, they instead were catching falling knives. Abu Dhabi Investment Authority’s (ADIA) $7.5 billion investment in Citigroup Inc. in November 2007 is probably the most notable example of this, although there were others. ADIA has lost about 80% of its Citi investment, according to the AP.

Since their earlier foibles, SWFs have been understandably reluctant to wade back into the West’s choppy financial waters. But don’t shed many tears for the Arabs. In cycles such as this, cash is king, and the GCC-area funds are sitting on a ton of cash. They will be heard from again.