The new year is a time for new beginnings, and it comes not a moment too soon. Because, frankly, who really wants to go through all that again.
The world got a lot smaller in 2008. Only 12 months ago it was possible to believe that the financial crisis was confined largely to the U.S. housing market and financial institutions exposed to it. Banks were taking big write-offs, sovereign wealth funds were recapitalizing them, the Federal Reserve was cushioning the economic fallout with rate cuts, and growth in the rest of the world was humming along nicely. If the crisis was historic, it was because it marked a passing of the baton of economic leadership from the U.S. to emerging powers like China.
Today’s outlook is much more sober. Far from having decoupled, the world is so closely knit together by financial ties and information flows that the collapse of a U.S. bank can bring the global economy to its knees almost overnight. U.S. stocks have had their worst year since the Great Depression, but almost every other developed and emerging market suffered even bigger losses. It may be audacious to hope that President-elect Barack Obama and his pragmatic economic team can turn things around, but many people will be clinging to that aspiration all the same.
The change in the economic climate has been brutal for Dubai International Capital. Founded four years ago as a flagship of the Gulf emirate, the firm built a public and private equity portfolio worth an estimated $11.5 billion. But as London Bureau Chief Loch Adamson reports in “Dubai Dreams,” the meltdown in financial markets has left DIC with a massive paper loss on its billion-dollar investment in U.S. hedge fund Och-Ziff Capital Management and frozen its ability to exit any of its private equity holdings. So instead of looking for quick gains, CEO Sameer Al Ansari has little choice but to hunker down and improve the operating performance of its companies. As he tells Adamson, “I have no idea when normal business conditions will resume.”
DIC’s plight is far from unique. In “Bracing for Battle,” Contributor Jonathan Kandell takes an inside look at OYAK, the Turkish military pension fund that has generated big returns with a private equity investment strategy but now must cope with Turkey’s economic crisis. In “Trichet’s Tightrope,” we examine the challenge facing European Central Bank president Jean-Claude Trichet, who has flooded Europe’s money market with cash to combat the credit crisis but faces pressure to take bolder action as the European economy falls deeper into recession. The crisis has also prompted a radical reordering of the global financial elite. In “The Power 50,” our annual ranking of the most powerful people in finance, policymakers and financiers who skillfully navigated the credit turbulence are up, and big-name bankers who didn’t are down, if not out.
New strategies for a new year. Let’s hope that’s change we can believe in.
