eFinancialCareers

Flush with cash they may be, but it’s not the size of your sovereign wealth fund that matters, it’s what you do with it that counts.

Keen to diversify away from the oil that has filled their pockets, Middle Eastern SWF funds have made some high-profile international investments of late, but they’re not exactly posting stellar returns.

Paul Kedrosky, of the website Infectious Greed, has compiled a spreadsheet of nine notable investments of SWFs, and the average return came in at -26%.

The Abu Dhabi Investment Authority injected $7.5bn into Citi, which has seen its shares slip by nearly 29%; meanwhile, its AMD investment has hit the skids and slumped by 49.1%.

And Dubai International Capital’s heavy-handed failed bid for Liverpool FC was clearly one from the heart rather than the head. Rabih Khoury, chief exec of DIC’s emerging markets division, is an avid Liverpool fan, apparently, and the collapsed bid – together with comments he may or may not have made about Citi’s fate – appear to have cost him his job.

Then there’s the Qatar Investment Authority, which took a 2% stake in Credit Suisse a day before the bank announced that it had forgotten to mention another $2.85bn sub-prime howler in its annual report.

Though the coffers might be bulging, one could conclude there’s a dearth of alpha-generating fund managers willing to work for SWFs.

Things were getting so desperate at one stage that there were rumours that SWFs were looking to buy entire asset management firms, just to lift out the talent. And their plight clearly isn’t helped by the fact that they pay less than most.

Recruiters tell us SWFs in the Middle East are looking to take on asset managers, private equity professionals, M&A bankers and capital markets financiers.

SWFs are obviously the media’s flavour of the month, and forays into international investments are thrust into the limelight, illuminating every dodgy decision like Times Square’s Christmas tree.

This alone should be a hard enough kick up the backside to incentivize the SWFs to create tasty packages to attract the financial industry’s crème de la crème and put an end to this costly game of trial and error.