Risk to Sovereignty: Funds that nations fear
Sovereign funds control around $2.5 trillion more than all the world's hedge funds combined. Smart ways to invest or spend!
By Agencies |
LONDON: UK Chancellor Alistair Darling doesn’t like them. Italian Prime Minister Romano Prodi and European Union trade commissioner Peter Mandelson don’t either. Sovereign wealth funds, the huge pools of capital built up by a small group of mainly oil-rich nations to invest their assets around the world, are becoming very unpopular.
As the funds grow in power and wealth, the clamour for more regulation of their investments will only get louder.
It’s all nonsense. The funds don’t pose a threat to anyone. There is no coherent case to be made against them. And any cure is likely to be worse than the problem it is trying to fix. That won’t stop the politicians from trying.
Darling said in October the UK government would protect strategic industries from takeovers by foreign state-controlled investment funds, such as those run by Kuwait, Saudi Arabia and China. “Sovereign wealth funds or companies owned by governments need to play by the rules,” he said.
Juergen Stark, a board member of the European Central Bank, has called for a code of conduct for the funds. And in July, Mandelson said the EU may need to take a golden share in strategic industries to prevent companies falling into the hands of the funds, according to the Italian newspaper Il Sole 24 Ore.
In fairness, you can see why there is a debate. Sovereign wealth funds, which invest currency reserves in foreign assets, control an estimated $2.5 trillion, more than all the world’s hedge funds combined. With high commodity prices translating into surging reserves in emerging economies, their stockpiles of cash will only get bigger.
“There has been much political angst about SWFs,” Morgan Stanley economist Stephen Jen said in an analysis, referring to the funds. “It does not seem to make sense for regulatory authorities and politicians to single out SWFs.” It is hypocritical to attack the funds.
Nobody minded when emerging economies recycled all those dollars, pounds and euros by putting cash on deposit in our banks, or buying bonds issued by our governments. So why should we mind when they start buying companies? They are just diversifying their holdings, like any prudent investor would. If we don’t like them purchasing our equities, shouldn’t we tell them to stop buying our bonds and currencies as well?
In a global economy, few companies are owned domestically. Stocks are traded across frontiers. It doesn’t make much difference whether your local supermarket or service station is owned by a hedgefund manager in Zurich, a pension fund in California or an investment firm in Dubai. What counts is whether there is enough competition to make sure it offers good service and fair prices. So long as it does, there is no problem.
As the funds grow in power and wealth, the clamour for more regulation of their investments will only get louder.
It’s all nonsense. The funds don’t pose a threat to anyone. There is no coherent case to be made against them. And any cure is likely to be worse than the problem it is trying to fix. That won’t stop the politicians from trying.
Darling said in October the UK government would protect strategic industries from takeovers by foreign state-controlled investment funds, such as those run by Kuwait, Saudi Arabia and China. “Sovereign wealth funds or companies owned by governments need to play by the rules,” he said.
Juergen Stark, a board member of the European Central Bank, has called for a code of conduct for the funds. And in July, Mandelson said the EU may need to take a golden share in strategic industries to prevent companies falling into the hands of the funds, according to the Italian newspaper Il Sole 24 Ore.
In fairness, you can see why there is a debate. Sovereign wealth funds, which invest currency reserves in foreign assets, control an estimated $2.5 trillion, more than all the world’s hedge funds combined. With high commodity prices translating into surging reserves in emerging economies, their stockpiles of cash will only get bigger.
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Russia said this month it may get in on the act by investing some of the $141.1 billion in its Stabilisation Fund in major foreign companies. If Putin starts buying German airports or French motorways , watch the sparks fly. “There has been much political angst about SWFs,” Morgan Stanley economist Stephen Jen said in an analysis, referring to the funds. “It does not seem to make sense for regulatory authorities and politicians to single out SWFs.” It is hypocritical to attack the funds.
Nobody minded when emerging economies recycled all those dollars, pounds and euros by putting cash on deposit in our banks, or buying bonds issued by our governments. So why should we mind when they start buying companies? They are just diversifying their holdings, like any prudent investor would. If we don’t like them purchasing our equities, shouldn’t we tell them to stop buying our bonds and currencies as well?
In a global economy, few companies are owned domestically. Stocks are traded across frontiers. It doesn’t make much difference whether your local supermarket or service station is owned by a hedgefund manager in Zurich, a pension fund in California or an investment firm in Dubai. What counts is whether there is enough competition to make sure it offers good service and fair prices. So long as it does, there is no problem.
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