Dubai International Capital has agreed to buy a $1.25bn stake in the New York hedge fund Och-Ziff, the latest in a flurry of foreign acquisitions by sovereign wealth funds.
Much like the Chinese government's purchase of a 10 per cent holding in Blackstone just weeks before the private equity giant's stock market float last summer, DIC acquired the 9.9 per cent stake in Och-Ziff just days before it is expected to list on the New York Stock Exchange.
The transaction came on the same day that it emerged China's Social Security Fund had met at least three American private equity firms about buying a minority stake in one of them.
The developments will surely add to the growing debate about whether there is sufficient transparency or regulatory controls on foreign state-owned entities. Flush with cash from record commodity prices and foreign exchange reserves, funds in the Middle East and Asia have begun to increasingly look abroad to invest, and to attract greater foreign direct investment as well.
DIC has been one of the most active investors in the UK. Its holdings include Merlin Entertainment, owner of Madame Tussauds, the budget hotel chain Travelodge, and HSBC, in which it has a minority stake.
Under the deal with Och-Ziff, DIC would buy 38.1 million shares at up to $33 per share, the top end of the proposed share range for the float. The companies said the deal would be the cornerstone of a "strategic relationship" that would include co-investing in future deals. It will be enacted when Och-Zif's $12bn float happens, which is expected by the middle of next month. The hedge fund will reinvest the cash into its funds.
Such partnerships are becoming increasingly common between Western financial groups eager to get a foot into the door in emerging markets. It will also provide Och-Ziff with some extra cash. The fund slashed the size of the offering by 40 per cent earlier this month in reaction to the change in market sentiment from the credit crunch.
Dubai is trying to establish itself as the Middle East's hub for financial services. The tie-up with Och-Ziff will not only give it access to a fresh pipeline of deals in which to invest, but also give it greater presence at a Wall Street investment house with more than $30bn under management.
"We believe Och-Ziff is uniquely positioned to take advantage of the anticipated strong growth in the alternative asset space based upon its global platform and experienced management team," said Sameer Al Ansari, chief executive of DIC.
"This transaction serves as the foundation on which DIC and Och-Ziff can build synergies going forward. DIC is thrilled to be part of the Och-Ziff story and we are committed to making progress with the strategic aspects of our new alliance."