Korea and Barclays, Sensing an Opening, Pounce on Resources

(September 10, 2009) – Barclays, a close friend to sovereign wealth funds in the economic downturn, is set to allow such investors the ability to invest in natural resources alongside the British bank.

The South Korea Natural Resource Fund, multiple news sources are reporting, is in talks with Barclays—which has put upward of $1 billion into its natural resources unit over the past four years—about a $400 million investment tagged for natural resource allocation in Africa, Asia, and Latin America. The target investments would be physical assets and resources such as mines, power plants, and oil fields. The goal, it is reported, would be to hold such assets for three to five years before exiting.  

The talks, if successful, would echo a move by Chinese government funds, which have gone heavily into oil in recent years; the move also would signal an increasing belief that resource prices—recently pummeled by a bursting bubble and the global decrease in demand—are set to rebound. Fears of inflation following liquidity injections across the globe also are seen as driving investors into hard assets.

The potential venture between Barclays and the South Korean fund would be further evidence of many SWFs’ willingness to work with western-based investors. Part political, part strategic, this arrangement has been seen with many funds as of late, including the Abu Dhabi-based Mubadala’s partnership with Malaysia Development in a Malaysian energy and real estate deal worth upward of $1 billion; France’s Fonds Stratégique d’Investissement possible joint venture with Mubadala in the French biotechnology field; Korea Investment Corporation’s agreement with Malaysia’s Khazanah Nasional and the Australian QIC; and the joint venture backing Blackrock’s purchase of Barclays Global Investors formed by Chinese, Singaporean, and Kuwaiti SWFs.

The ties between Barclays and SWFs are especially tight. During the economic downturn, the bank sought and found investments from Abu Dhabi and Qatar wealth funds, avoiding British government intervention.