Japan has begun talks with sovereign wealth funds in the Middle East to raise as much as 100 billion yen ($927 million) to boost foreign investment that is less than a quarter that of the US. Officials have met with state funds, including Saudi Arabian Investment Co., in oil-producing nations to create a 200 billion yen fund to which Japan will provide half the initial capital from its budget in the next two years, a senior official at the Ministry of Economy, Trade and Industry said on condition of anonymity because negotiations are under way. Japan aims to attract some of the $3.3 trillion in assets held by sovereign wealth funds that want to expand investments beyond the US and Europe after the US subprime mortgage crisis. Japan ranked last among major economies as a destination for foreign direct investment between 1997 and 2006 in a study by the Organization for Economic Cooperation and Development. “It is not specifically oil money that they are after; any money will do,'' said Nicholas Smith, director of equity sales at HSBC Securities Japan Ltd. in Tokyo. “Middle Eastern funds tend to be most interested in infrastructure, construction and renewable energy investments.'' Trade ministry officials began talks during a six-day trip to Saudi Arabia, Kuwait, the United Arab Emirates and Qatar last week, the official said. Government officials and representatives from industries will hold a second round of talks in October or November to present investment opportunities, he said. Japan Minister of Economy, Trade and Industry Toshihiro Nikai said last month that his country must step up efforts to attract investments by sovereign wealth funds in a bid to sustain economic growth. The economy shrank an annualized 2.4 percent last quarter, the most since 2001. Foreign direct investment in Japan was about 3 percent of gross domestic product at the end of 2007, according to the Cabinet Office. That compared with 45 percent in the UK, 14 percent in the US and 8.8 percent in South Korea. Japan plans to draw investments in companies involved in “leading technologies'' such as health care, alternative energy including solar-power panels, education, and construction of railways and highways as oil-reliant countries look to diversify their portfolios, the official said. The fund is a good opportunity for Kuwait to spread its investments, said Abdelghanie Ennam, a media analyst and academic affairs coordinator at Kuwait's embassy in Tokyo. Japan's trade ministry will manage the pool of money over the next two fiscal years and aims to increase assets by luring investments from investors including private funds, the official said. The ministry will seek legislative approval to manage the fund in the fiscal year starting April and decide on how the fund will be administered, he said. The ministry will create a commission made up of 20 funds, including local representatives of Carlyle Group, the world's second-largest private-equity firm, and KKR & Co., to identify investment opportunities in Japan for the fund. The commission is slated to hold the first meeting on Sept. 3 in Tokyo. Wealth funds played a key role in propping up Wall Street firms stung by losses stemming from the US subprime-mortgage crisis. The Kuwait Investment Authority and the Abu Dhabi Investment Authority were among investors who infused $44.1 billion into Citigroup Inc. For its part, Japan is seeking money from sovereign wealth funds to sustain economic growth and strengthen energy ties amid heightened competition with China and India for overseas oil and natural-gas assets. Kuwait, Qatar, Saudi Arabia and the UAE supply 69 percent of Japan's oil. Saudi Arabia and the UAE are the top two oil exporters to Japan. Dubai International Capital LLC, the $13 billion fund manager whose investors include the emirate's ruler, bought shares in Sony Corp., the world's second-largest consumer electronics maker, last year in its first investment in a Japanese company. Abu Dhabi's International Petroleum Investment Co. bought a more than 20 percent stake in Cosmo Oil Co., Japan's fourth- largest refiner, in October. Government of Singapore Investment Corp. bought the Westin Tokyo hotel from Morgan Stanley in February. The Kuwait Investment Authority, with $250 billion in assets, said last month it may triple its investment in Japan to as much as $48 billion, the state news agency Kuna reported.
