Max Flint (commentary): Tonight on the Money Programme; brace yourself for a foreign invasion.

Kerry Brown: They are in a difficult position of having a lot of money and not really knowing where and how to spend it.

Max (commentary): In a world crippled by the credit crunch there’s a new economic superpower on the block.

Peter Barker-Homek: By 2012, Sovereign Wealth Funds will have about seven trillion dollars at their disposal to invest worldwide.

Max (commentary): Foreign governments rich from oil and trade have already invested in Barclays, Sainsbury’s and the London Stock Exchange; they even have our football clubs in their sights.

Jimmy Tarbuck: It would be very strange to think my beloved Liverpool Football Club was owned by another country.

Liverpool FC fan: Give this sheikh a chance and he will make Liverpool great again.

Max (commentary): But are we selling Britain’s economic power on the cheap.

Jeremy Warner: The danger is that a country which is as open as Britain to foreign investment eventually just becomes the kind of play thing for the political whims of foreign powers.

Max (commentary): Fasten your seatbelts for a journey from Merseyside to the Arabian Gulf as we go in search of the super rich investors with enough cash and enough desire to buy up Britain.

Max (commentary): For as long as it’s been played football has been played on Merseyside. Liverpool FC is Britain’s most successful club winning more silverware than any other including five European Cups, three UEFA Cups and eighteen league titles.

Liverpool Fan: You think Italy; you might think Juventus. Spain; you might think Real Madrid. England; you think Liverpool. We are one of the great, great football clubs of the world and world famous.

Football supporter: Come on you lads!

Richie Pedder (Liverpool FC Supporters’ Club): Liverpool Football Club is a British institution. I started coming 54 years ago with me dad and obviously he was a Liverpudlian and that’s what actually caught me imagination when I first went to the first game. They used to have cups of teas in those days and when the fans had finished with their cups of teas they used to put them on the floor and I used to go and collect them and used to get a penny for each cup and that’s how I got me money for the next match. Times have changed; there’s billions going into football clubs now.

Max (commentary): Football’s become big business; Liverpool won £45 million this year just for coming fourth. The Premier League’s television rights cost £2.7 billion over three years and top players like Liverpool star Fernando Torres cost £20 million plus. To say nothing of their wages.

Jimmy Tarbuck: You go in the dressing rooms now they’re all multi-millionaires; the players and the manager. That’s life, that’s the way it’s going.

Max (commentary): So the costs of running a football club like this are huge but so too are the rewards if you get it right. That’s why so many clubs have been bought up by wealthy foreign owners.

Jimmy Tarbuck: I mean when I was a kid watching football all the great teams were owned by local businessmen, successful men. I mean the thought of foreign ownership, well it just wouldn’t be thought of, it would be laughed, you know, you’re joking but of course Mr Abramovitch arrived at Chelsea and it was carte blanche who they could buy. He was the, he had that type of wealth.

Max (commentary): In 2006, Liverpool was bought by two American sports tycoons but it hasn’t brought the success the fans wanted. They’re now hoping a new buyer will step in.

Richie Pedder: Looking back on Arsenal, Man United over the last three or four years they’ve invested in players and especially Chelsea have invested in players, 30, 20, 30, 40 million and we need to get in that league.

Max (commentary): But the credit crunch has wiped out many British investors access to the kind of money needed to buy a club like Liverpool. That’s opened the door to a buyer with a difference; not a tycoon or even a company but the Middle Eastern state of Dubai.

Jimmy Tarbuck: Dubai, a country, is going to buy my club, well that’s bizarre. It’s great but it’s bizarre.

Max (commentary): Dubai is 3,500 miles from Liverpool and half a world away.

Oil, trade and financial services have turned this small gulf state into an international business hub with a reputation for luxury living.

These revenues have made the state’s ruler, Sheikh Mohammed, one of the world’s richest men.

It seems he’s also a Liverpool fan and he’s not the only one in this part of the world.

So we’re in Dubai, we’re technically in the middle of the desert, it’s the very last place you’d expect to find four hundred Liverpool fans except tonight they’re playing Chelsea and this is like a mini Kop.

Every match day this red army takes over a hotel bar in Dubai Marina. Tonight it’s the Champion’s League semis but that’s not the only thing the fans here have to shout about. They’re dreaming of a big money Dubai takeover.

Liverpool FC fan 1: We’re all for it mate, we love it out here, you know, we’re big supporters of the club out here.

Liverpool FC fan 2: Oh I think it’s brilliant, it’s a massive step forward.

Max: What difference will it make to you as a Liverpool fan?

Liverpool FC fan 3: A huge difference of course.

Max: Why’s that?

Liverpool FC fan 3: Dubai has got the money, they can, they can spend it. They’ll definitely improve the club.

Liverpool FC fan 4: Give this sheikh a chance and he will make Liverpool great again.

Max (commentary): It’s not actually the sheikh himself who wants to buy Liverpool; it’s an investment fund called Dubai International Capital or DIC. Now pay attention because this is where it gets complicated.

DIC is part of Dubai Holding which is owned by the ruler of Dubai Sheikh Mohammed and nothing happens in Dubai without the say so of the sheikh.

DIC invests Dubai’s wealth around the world. As well as its interest in Liverpool FC it already has stakes in some iconic British brands like the London Eye and Alton Towers. It owns the budget hotel chain Travelodge and it’s invested in Britain’s biggest bank HSBC. It even has a 20 per cent stake in the London Stock Exchange.

Dubai isn’t the only state investing beyond its borders. Up the road Abu Dhabi is at it too as is Kuwait, Qatar and Saudi Arabia. The question is; why?

This part of the world is so energy rich it has a problem. It’s a big problem but essentially quite a nice one as well; it makes too much money. If it spent all its profits at home the inflation rate would go through the roof. So where does it put all that surplus cash?

It puts it into investment vehicles called Sovereign Wealth Funds, which are then invested abroad.

Youssef Nasr (Chief Executive, HSBC Middle East): These countries started saying that we now need to create something which becomes the annuity income or the reserves of the country when the oil or the gas runs out.

Max (commentary): Other states noticed the success of the early oil funds and started putting away their surpluses for a rainy day. Over time they’ve grown and grown and today they’re worth billions. No two funds are the same, different countries have different set ups and some even have several funds investing in different sectors.

So who are these super savers? Here’s the rundown of the world’s top ten Sovereign Wealth funds.

In at ten with £42.6 billion in old money it’s the Algerians. At nine it’s more oil dollars, this time from the Qataris.

In at eight it’s our friends the Libyans with their oil reserves.

At seven it’s those master traders the Singaporeans.

New at six it’s China with its huge foreign currency reserves.

At five Sovereign Wealth old school with the Kuwaitis.

Awash with oil at four it’s Saudi Arabia.

At three it’s those cheeky Singaporeans again; they’re so rich they have two funds.

At two a surprise entry from Norway’s North Sea oil fields.

And at number one for the 32nd year running with a cool £875 billion it’s the Abu Dhabi Investment Authority.

A lot of these funds are very secretive; they prefer to stay in the shadows. We don’t even know exactly how much money we’re talking about here. It’s thought to be around two trillion dollars. Now a lot of that money is coming our way. Liverpool fans may be excited about that, other people are less enthusiastic.

The residents of Keynsham in Somerset are on the war path. In their sights an American investor and a Middle Eastern Sovereign Wealth Fund. From this chocolate factory the workers of Keynsham have been churning out milk chocolate bars and Cream Eggs to a grateful nation for decades.

But, last year Cadbury announced plans to close the factory.

Tony Crouch (Keynsham Town Councillor): My emotions, well I mean first of all it was shock and then it was horror and it was concern about the future for the community.

Max: The Keynsham activists aren’t taking it lying down; they’re off to lobby shareholders at the Cadbury AGM and they’re armed with some interesting information.

Tony Crouch: We did some investigating and discovered that five percent of the shares were owned by an American, Mr Pelz and that he was connected with Qatari Sovereign Funds.

Max: The Keynsham residents believe investor Nelson Pelz and his Qatari backers put pressure on the Cadbury board in order to boost the company’s share price and increase their profits.

Tony Crouch: In order to produce this good return they need to increase the profits quickly and their intention therefore was to close the factory in Keynsham, Bristol and to open a factory in Poland where they believe they will make more profits.

Cadbury worker: Hello Sir, could I give you one of these, a little bit of information about the dreadful, senseless idea of moving Cadbury’s two hundred and fifty-three year old chocolate factory to Poland. Ok.

Shareholder: Oh right. Ok.

Max (commentary): The protestors have a simple message for Nelson Pelz and the Qataris.

Simon Hazelwood: Think about the influence that your investment is having in Cadbury’s, think about the local jobs that are going to be lost, think of the impact it’s going to have on communities and think about the iconic status of Cadbury’s in Britain.

Cadbury shareholder: Oh yeah, I’ll probably get bored I’ll need to read something!

Max (commentary): Unfortunately neither Mr Pelz or any Qatari Sovereign Wealth Fund investors appear to be at the meeting.

Tony Crouch: It’s very frustrating and difficult, we would like to sit round a table with these people but it just doesn’t seem to be possible, they don’t seem to be prepared to do that, we’re always prepared to talk to people and try and persuade them of our case.

Max (commentary): Cadbury told us the decision to close the Keynsham factory was made because it was no longer commercially viable. It says it takes responsibilities to the community seriously and has taken steps to minimise the impact of the closure on workers and locals.

The Keynsham residents say they’ve fallen foul of a Sovereign Wealth Fund much more interested in profits than their community but others are more worried the Sovereign Wealth Funds could use their power and their influence in much more sinister ways.

There are growing concerns that in our desperation to get our hands on their cash we might end up handing control of great swathes of our industry to foreign regimes.

Jeremy Warner (Journalist, The Independent): As these foreign powers grow in wealth and influence the danger is that a country which is as open as Britain to foreign investment eventually just becomes the kind of play thing for the political whims of foreign powers.

Max (commentary): In this nightmare vision foreign regimes could buy up key companies and use their new influence in our economy for their own political ends.

Jeremy Warner: Dubai buying Liverpool may not be much of an issue, it’s hard to argue that Liverpool Football Club is of strategic national interest although the fans of Liverpool might take exception to what I’m saying here but when it comes to a, a utility or a major bank then there could well be an issue.

Reporter 1: In a control room somewhere in Russia gas workers turn off supplies to Ukraine. This is just an exercise...

Reporter 2: ...gas crisis is being transmitted all the way through Europe’s energy system...

Max (commentary): Alarm bells rang in two thousand and six when Russia showed interest in buying British Gas at the same time as its state energy company was accused of restricting supplies to its neighbour Ukraine.

Jeremy Warner: In those circumstances there would be the risk of what happened in the Ukraine where Russia could almost try and hold the country to ransom.

Reporter 3: Ukraine insists Moscow is trying to blackmail it by turning off its gas saying Russia is....

Russian spokesman: If Ukraine fails to sign a contract for gas purchases from ten am Moscow time on January first, the rivers of gas to Ukrainian consumers from Russia will be completely halted.

Max (commentary): Some Sovereign Wealth Funds are already investing heavily in gas and electricity utilities. The Abu Dhabi Sovereign Wealth Fund, TAQA, invests in and runs energy companies around the world. Its portfolio is impressive.

Peter Barker-Homek (Chief Executive, TAQA): We’re a mini British Gas; today TAQA operates and owns the twelfth largest Canadian oil and gas ENP company, we also have investments in Morocco where we provide for sixty percent of the power to Moroccans. In the Netherlands we’re building a gas storage field that will serve both the continent and the UK markets and then we have power and oil and gas assets throughout Saudi Arabia, Ghana, India and the UAE.

Max (commentary): But TAQA denies its motives are anything other than money making.

Peter Barker-Homek: Most Sovereign Wealth Funds that I’m aware of and certainly the ones within the UAE all invest for commercial reasons.

Newsreader: At six o’clock, credit crunch becomes credit crisis; billions are wiped off shares after the collapse of a large American bank.

Caption: BBC News 17th March 2008

Max (commentary): Sovereign Wealth Funds say if we need proof of their intentions we need only look at where their money is going.

In the past 12 months, these funds have sunk billions into beleaguered western banks hit hard by the credit crunch.

Max: Can Sovereign Wealth Funds save the west in the current credit crunch?

Peter Barker-Homek: I think they’ve proven themselves to be a stabilising influence in the world and they’ve put to work billions of dollars to stabilise the banking system in, in Europe and specifically in the United States.

Max (commentary): Abu Dhabi isn’t the only fund that has invested in Western banks in the wake of the credit crunch. It joined funds from Singapore and Kuwait to sink almost twenty billion dollars into Citigroup. The Singaporeans and Kuwaitis were also the main players in a twelve point eight billion dollar deal with Merrill Lynch. Saudi Arabia and Singapore invested a cool eleven point five billion in Swiss banking giant UBS.

One of Singapore’s Sovereign Funds bought into Barclays Bank with two billion dollars. And China invested in Morgan Stanley with a timely £5 billion.

Sovereign Fund sceptic Jeremy Warner thinks that the banks accepting cash from these funds are taking a big gamble.

Jeremy Warner: Right, I’m going to do a fiver on...

Max (commentary): There’s no doubt that some of the bail outs have been a God send for the banks concerned.

In most cases, despite the Sovereign investors acquiring sizeable stakes in the banks, they have not asked for representation on their boards.

Jeremy Warner: Did you win?

Max: Yes.

Max (commentary): To the banks that may seem like a win-win scenario where in the short term at least they’re getting money for free.

Fifteen quid up on the night!

But privately there are worries about what the impact of this investment might be in years to come.

Jeremy Warner: These funds are un-transparent, they’re frequently run either directly by government officials or by government cronies so although we have not yet seen any cases of outright abuse it’s quite possible that we’ll get them and in fact I think extremely likely over the next five to ten years.

Max (commentary): This abuse need not necessarily be obvious or even dramatic instead it could take place subtly behind closed doors.

Jeremy Warner: I mean what do you do for instance if you’re the chief executive of a major US or London based bank and the finance minster of the country that runs the Sovereign Wealth Fund who’s a major investor in your, your bank happens to read in the press that you’re investing a lot of money in an IT support centre somewhere in London or New York and he gives you a call and says; wouldn’t it be nice if you located that in, in Beijing or somewhere else in the Far East or wherever and it’s very hard then for the chief executive, might be very hard for the chief executive to say no.

Max (commentary): The country that Sovereign Wealth Fund sceptics are most concerned about is China.

China is the world’s third biggest economy and it’s fast growing into an economic superpower. Backing up its financial ambitions is a huge wad of saved up cash. One point six trillion dollars to be precise.

China researcher Kerry Brown says it’s made most of its money through trading with us. We just can’t get enough of China’s cheap manufactured goods.

Kerry Brown (Royal Institute of International Affairs): 80 per cent of the world’s toys are from China.

There’s actually a town which produces something like ninety percent of the world’s socks. There’s a single factory in southern China that produces seventy percent of the world’s microwaves.

The problem with the Chinese economy is it’s not a knowledge economy, it’s a manufacturing economy.

Max (commentary): The China Investment Corporation is one of the newest members of the Sovereign Wealth Fund club but with their Communist past the Chinese don’t have much experience trading stocks and shares.

Kerry Brown: The problem is of course that they have no real knowledge or expertise, they’ve been very reliant on advice about that so, you know, they are in a kind of difficult position of having a lot of money and not really knowing where and how to spend it.

Max (commentary): So far China’s investment record has been less than impressive. They’ve lost money on a lot of their deals. But that hasn’t put them off. Could that be because they aren’t investing for just commercial reasons but political ones as well? If anyone should know it’s the former Governor of Hong Kong.

Lord Patten of Barnes (Governor of Hong Kong 1992-97): Their first encounter with a serious investment didn’t exactly go well because they put three billion into Blackstone and lost a billion of that pretty smartly, which I think had hands rapped back in Beijing. But I do think they see it seriously as an attempt to get a better return on the huge earnings they’ve piled up rather than a way of making a geo-political point.

Max: Do you think there’s no strategic element in it at all then?

Lord Patten of Barnes: There’s strategic elements in part of it, which are related to what the Chinese call their ‘go out strategy’. They’re obsessively concerned about commodities and the importance of continuing commodities at a reasonable price.

Max (commentary): China needs raw materials to fuel its growing economy so the Chinese have invested heavily in Africa; buying up stocks in mining, minerals and metals.

Lord Patten of Barnes: Obviously some of their investments in Africa are related to their attempts to establish a foothold in some markets where they want to be able to go on buying commodities. Not an unreasonable hope because after all we’ve been doing the same sort of thing for years.

Max (commentary): But, some think China’s investments in Africa raise serious ethical questions.

Kerry Brown: Chinese investments in the Congo, Zimbabwe, Sudan are very, very problematic because there’s weak governments there, human rights abuses, largely the Chinese money has been used to buy local elites, local governments, you know, corrupt governments with very poor governments to bash the heads of their own people.

Max (commentary): There are ethical dilemmas with us accepting investment from China too, especially over human rights.

Kerry Brown: If we come to the crunch about issues like Taiwan or Tibet, things where we are strategic competitors in a way and we don’t agree, does that mean that in a sense we’re going to have to be very muted in our response, that we’re going to be actually sort of obliged to react less strongly than we did before. I think that that’s the problem.

Royal Institute of International Affairs: And the Chinese approach to open government doesn’t help quell fears about its motives.

Kerry Brown: Until last year the Chinese Investment Corporation, I mean it didn’t really exist, it was called something else before and it didn’t have any publicly stated, you know, kind of corporate government standards, it didn’t have any regulatory sort of framework, its public spokespeople weren’t really kind of publicly named so there’s this issue of, you know, us dealing with an entity which is not really out in the open.

Max (commentary): Not all Sovereign Wealth Funds are as secretive as the China Investment Corporation. The Norwegian Fund, for example, actually publishes reports on its investments and the Singapore and Abu Dhabi funds, well they’re quite transparent. But, they are the exceptions; most Sovereign Wealth Funds are as see through as the oil they come from.

It’s this lack of transparency that makes people so suspicious about their motives.

Jeremy Warner: We don’t know often who controls them, who runs them, what their connections into government of these people are, what lobby groups they represent, what boards they sit on and so forth. All these things that we take for granted in the west that we’re able to find out and therefore know the motivations of, are largely impossible in a number of these funds.

Max (commentary): Moves are now under way to persuade all Sovereign Wealth Funds to become more transparent. Representatives from Norway, Singapore and Abu Dhabi’s funds are helping compile a code of practice for the industry.

Max: What do you think of the scrutiny that Sovereign Wealth Funds are coming under?

Peter Barker-Homek: We’re a real believer in transparency, real believer in good governance, our standards are as high as anybody listed on the New York Stock Exchange or London Stock Exchange. So by bearing the standard for transparency and good governance and disclosure we hope not only to set a standard for other Sovereign Wealth Funds but indeed for private equity and hedge funds which have often been accused of being too opaque.

Max: But some funds including Liverpool Football Club’s potential buyers in Dubai have responded cautiously.

Youssef Nasr: They’re worried that they are too transparent, that they might be laying down a road map to other players about where they’re going to be putting their investments and so on so they feel that they’re going to be at a disadvantage because for many of these assets they are in competition with other types of investors.

Max (commentary): And bankers warn that unless there is worldwide agreement on guidelines then funds will simply stop investing in the west and that would be our loss.

Youssef Nasr: We’ve had many transferences of wealth in history, this is one of them. Part of the world is in a capital accumulation phase, part of the world is in need of capital, to create artificial barriers as opposed to trying to find a modus operandi to make these close up then I think we’re all worse off with that.

Max (commentary): As Sovereign Wealth Funds grow it looks like we’ll witness a continuing transfer of financial power from America and Europe to the Middle East and Asia.

Peter Barker-Homek: By 2012, Sovereign Wealth Funds will have about seven trillion dollars at their disposal to invest worldwide, that equals the US GDP.

Max (commentary): The bottom line is that while we in the West continue to demand oil and cheap imports the countries we buy them from will become richer giving them more and more cash to buy into our companies.

Lord Patten of Barnes: They’re going to be very big players, and that shouldn’t worry us. Would we prefer the countries of the Gulf to be earning all that money and burying it in the sand? Would we prefer the Chinese to be simply hoarding the money or bailing out our banks and investing it in potentially profitable investment opportunities in, in the UK or Germany or France or America?

Max (commentary): To sceptics that’s a scary thought but to others it’s a great opportunity to attract major investment to Britain, even though by doing so it could mean handing over control to overseas interests.

Liverpool fans think selling out to Dubai is a chance worth taking.

Richie Pedder (Liverpool FC Supporters’ Club): Well money does talk, their desire is there to own this club, I’m sure they’ll come in with an offer that the football club itself cannot and will not refuse.

Jimmy Tarbuck: Well, if Dubai was to come in it would alter the playing field in our favour wouldn’t it. Mr Abramovitch can have as much as he likes, he ain’t got as much as Dubai that is for sure. You give me a pick, you can have either bank balance, I know where I’d go. And if it gets us back to winning the Premier League so be it. It would still and always will be Liverpool Football Club of Liverpool City. It won’t be changed at all; it will still be Liverpool Football Club.

And I love it!

Max (commentary): Just as Liverpool might need Sovereign Wealth Fund money to recapture its glory days so might the rest of the UK, to help us all through the credit crunch.

Caption: www.bbc.co.uk/moneyprogramme

Max (commentary): One thing is for certain we’re going to be hearing a lot more about Sovereign Wealth Funds in the future.

Caption: Next week: Mum’s the Business

Max: Next week Saira Khan meets the mumtrepreneurs.

Saira Khan: I’ll be meeting the women who’ve combined having a family with starting their own businesses.

Max (commentary): We’re in Downing Street with some of Britain’s most successful businesswomen.

Speaker: We’ve been very impressed yet again by the very high standard of entries....

Max (commentary): Whether it’s renting holiday homes or driving a lorry, more and more women are rejecting traditional employment.

Mum: I would hate to have to ask my boss if I could take time off to do the school run, for the school play, school sports day.

Max (commentary): So, can women really have it all? Join Saira next week; Friday at seven o’clock.

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Content last updated: 08/08/2008

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