Battle on for Libya's Hidden Wealth
by LANDON THOMAS Jr. . March 3, 2011 NY Times LONDON - As the battle for Libya <http://topics.nytimes.com/top/news/international/countriesandterritories/li bya/index.html?inline=nyt-geo> 1 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-1> rages on, the struggle over control of the country's sovereign wealth fund <http://topics.nytimes.com/top/reference/timestopics/subjects/s/sovereign_we alth_funds/index.html?inline=nyt-classifier> 2 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-2> and its $70 billion in assets has just begun. With a sizable pot of ready cash and stakes in a few elite European companies - including the British publisher Pearson and the Italian soccer club Juventus <http://topics.nytimes.com/top/news/sports/soccer/serie-a/juventus/index.htm l?inline=nyt-org> 3 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-3> - the fund served as an emphatic calling card for its founder, Seif al-Islam el-Qaddafi <http://topics.nytimes.com/top/reference/timestopics/people/q/seif_alislam_e l_qaddafi/index.html?inline=nyt-per> 4 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-4> , a son of the Libyan ruler who was once regarded as the reformer in the family. Formalized in 2007, at the onset of the financial crisis, the fund was used by Mr. Qaddafi in an effort to make the case that Libya was ready to open itself to the West. It helped draw into Mr. Qaddafi's orbit a range of powerful figures, including the Rothschild <http://topics.nytimes.com/top/reference/timestopics/people/r/rothschild_fam ily/index.html?inline=nyt-per> 5 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-5> family; Prince Andrew of Britain; the former European trade commissioner Peter Mandelson <http://topics.nytimes.com/top/reference/timestopics/people/m/peter_mandelso n/index.html?inline=nyt-per> 6 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-6> ; the cream of corporate society in Italy; and the American investors Stephen A. Schwarzman <http://topics.nytimes.com/top/reference/timestopics/people/s/stephen_a_schw arzman/index.html?inline=nyt-per> 7 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-7> of Blackstone and David M. Rubenstein of the Carlyle Group <http://topics.nytimes.com/top/news/business/companies/carlyle_group/index.h tml?inline=nyt-org> 8 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-8> . The United States said it intended to freeze any Libyan Investment Authority's assets controlled by U.S. institutions, though no specific bank or asset has been publicly identified. In Britain, officials say the fund will be prevented from selling and repatriating its assets, which include, in addition to its Pearson stake, a small portfolio of commercial real estate holdings in London. But what remains unclear is to what extent the $50 billion or so of cash and securities in the fund, which operated under the indirect control of Mr. Qaddafi, is accessible to the regime of his father, Col. Muammar el-Qaddafi <http://topics.nytimes.com/top/reference/timestopics/people/q/muammar_el_qad dafi/index.html?inline=nyt-per> 9 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-9> . Virtually all of Libya's riches come from oil, and while the country may well be sitting on cash mountain, deploying those sums in international markets to purchase arms or pay outside fighters is likely to be very difficult. People who worked closely with the fund say that its inner workings were largely a mystery, as bureaucratic inertia and lack of investment expertise kept it from being more active. It made its first outside investments only in 2008. Most of the money is probably held in Libya. "There was no backup, no staffing and no system - and everyone wanted to have a cut of the action," said Oliver Miles, a former British ambassador to Libya. "It would be wrong to say that it failed, but it has not succeeded, either." To a degree, Mr. Miles argued, the fund's experience mirrors that of Seif Qaddafi's reform agenda as a whole. "He did not have the professional knowledge and backup to do what he said he was going to do," Mr. Miles said, "and there is a question of how truly committed he was to reform." While bankers say that some of the cash pool is probably being managed by the investment banks that so aggressively wooed the fund in its early days, they say it is also likely that the bulk of the assets have been kept in Libya's liquidity-rich banking system - a reflection of the country's long experience with Western-imposed sanctions. In addition to the fund, Libya's central bank has reserves of about $110 billion, giving it a net cash position of about 160 percent of the nation's annual gross domestic product, according to the International Monetary Fund <http://topics.nytimes.com/top/reference/timestopics/organizations/i/interna tional_monetary_fund/index.html?inline=nyt-org> 10 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-10> . Ever since his "rivers of blood speech" last month, in which Mr. Qaddafi first expressed his family's determination to stay in power at all cost, his once-wide circle of acquaintances has shrunk dramatically. In Britain, friendship has turned to revulsion. Marjorie Scardino, the chief executive of Pearson, which publishes The Financial Times and The Economist, said the company was uncomfortable with Libya's 3 percent position. The company has frozen the position and will not pay out a dividend to the fund. In the British Parliament <http://topics.nytimes.com/top/reference/timestopics/organizations/b/british _parliament/index.html?inline=nyt-classifier> 11 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-11> , the opposition Labour Party has called on Prime Minister David Cameron <http://topics.nytimes.com/top/reference/timestopics/people/c/david_cameron/ index.html?inline=nyt-per> 12 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-12> to remove Prince Andrew from his current position as a worldwide promoter of British business interests. In Italy, where the fund was more heavily invested, in part because of the longstanding ties dating from Italy's colonization of Libya, the response has been more measured. Andreas Agnelli, the owner of Juventus, has said that he is not worried about the 7 percent stake which has been tied to one of Mr. Qaddafi's brothers, Al-Saadi, a former professional soccer player in Libya. Unicredit, the Italian bank that is 7 percent owned by the Libyan Investment Authority and the Libyan Central Bank, has merely said it is monitoring the situation. The investment authority was established in 2006, just as Libya, and Mr. Qaddafi in particular, were making a concerted attempt to rejoin the community of nations. Mercer, a consulting firm, was called in to provide technical advice, and Mr. Qaddafi made use of his connections at the London School of Economics, where he was getting his Ph.D., to recruit further expertise, including Howard Davies, the school's director, to serve as an adviser to the fund. Mr. Davies said he regretted his involvement with the fund and was no longer connected with it. He said he had taken no fee and had not offered advice on specific investments. Providing the intellectual launching pad for not just the fund but also for Mr. Qaddafi's fanciful dream to remake Libya as an entrepreneurial hub for the region to rival Dubai, was a paper he commissioned from Michael Porter, the international competitiveness expert at Harvard University <http://topics.nytimes.com/top/reference/timestopics/organizations/h/harvard _university/index.html?inline=nyt-org> 13 <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-13> , which extolled Libya's potential and its system of "popular democracy." _____ (Page 2 of 2) "We were there because the country seemed ready to reform," Mr. Porter said in response to a question about his involvement in Libya. "And Seif was the key reform driver. It became clear that the conservatives had blocked the reformers and I ended my personal involvement in 2007." The fund's nominal head is Muhammad H. Layas, perhaps Libya's most experienced international banker. He has had a leadership role in institutions including the Libyan Arab Foreign Bank, the only bank allowed to conduct international business during the imposition of United Nations <http://topics.nytimes.com/top/reference/timestopics/organizations/u/united_ nations/index.html?inline=nyt-org> sanctions against Libya; British-Arab Commercial Bank, a London-based wholesale bank now majority owned by Libya; and the Arab Banking Corp., a Bahrain-based bank also majority controlled by Libya. But while he was the titular head, bankers who have had dealings with the fund say that the real power was wielded by Mustafa Zarti, a close friend of Mr. Qaddafi's whose title is deputy chief executive. Brash and with an "in-your-face" style, according to people who dealt with him, Mr. Zarti went to school with Mr. Qaddafi in Austria. He is also his partner in a tuna farming enterprise, RH Marine Services, on the west coast of Libya. In 2008, as the fund began to get off the ground, Mr. Zarti attracted the attention of foreign bankers, so much so that at his wedding in Tripoli in 2009, two of private equity <http://topics.nytimes.com/top/reference/timestopics/subjects/p/private_equi ty/index.html?inline=nyt-classifier> 's biggest investors, Mr. Schwarzman of Blackstone and Mr. Rubenstein of Carlyle, were invited and attended as guests. Peter Rose, a spokesman for Blackstone, said Libya had not invested in any of the company's funds. Chris Ullman of Carlyle said that the company did not comment on who its investors were. While Mr. Qaddafi largely kept his distance from day-to-day operations, he would on occasion swoop in to authorize an investment, like its stake in Rusal, the aluminum producer controlled by the Russian oligarch Oleg V. Deripaska <http://topics.nytimes.com/top/reference/timestopics/people/d/oleg_v_deripas ka/index.html?inline=nyt-per> . By early 2010, the $65 billion fund was sitting on $50 billion in cash and securities, according to Mr. Layas. In an interview in his office in Tripoli a little more than a year ago, Mr. Layas said that the bankers were well aware of the billions in cash available to Libya's fund but that he was never tempted to invest overseas at the level and scale of other funds, like the Abu Dhabi Investment Authority. Indeed, he suggested that the scars from decades of sanctions were still deeply felt. "Sanctions have made us very conservative," he said. "And it is the opinion of the leader that as we build our reserves that we keep most of them with the central bank." _____ References 1. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-1> Libya <http://topics.nytimes.com/top/news/international/countriesandterritories/li bya/index.html?inline=nyt-geo> (topics.nytimes.com) ( http://topics.nytimes.com/top/news/international/countriesandterritories/lib ya/index.html?inline=nyt-geo ) 2. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-2> sovereign wealth fund <http://topics.nytimes.com/top/reference/timestopics/subjects/s/sovereign_we alth_funds/index.html?inline=nyt-classifier> (topics.nytimes.com) ( http://topics.nytimes.com/top/reference/timestopics/subjects/s/sovereign_wea lth_funds/index.html?inline=nyt-classifier ) 3. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-3> Juventus <http://topics.nytimes.com/top/news/sports/soccer/serie-a/juventus/index.htm l?inline=nyt-org> (topics.nytimes.com) ( http://topics.nytimes.com/top/news/sports/soccer/serie-a/juventus/index.html ?inline=nyt-org ) 4. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-4> Seif al-Islam el-Qaddafi <http://topics.nytimes.com/top/reference/timestopics/people/q/seif_alislam_e l_qaddafi/index.html?inline=nyt-per> (topics.nytimes.com) ( http://topics.nytimes.com/top/reference/timestopics/people/q/seif_alislam_el _qaddafi/index.html?inline=nyt-per ) 5. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-5> Rothschild <http://topics.nytimes.com/top/reference/timestopics/people/r/rothschild_fam ily/index.html?inline=nyt-per> (topics.nytimes.com) ( http://topics.nytimes.com/top/reference/timestopics/people/r/rothschild_fami ly/index.html?inline=nyt-per ) 6. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-6> Peter Mandelson <http://topics.nytimes.com/top/reference/timestopics/people/m/peter_mandelso n/index.html?inline=nyt-per> (topics.nytimes.com) ( http://topics.nytimes.com/top/reference/timestopics/people/m/peter_mandelson /index.html?inline=nyt-per ) 7. ^ <https://www.readability.com/articles/jejpqp3d?legacy_bookmarklet=1#rdb-foot note-link-7> Stephen A. 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