7/30/2019 Sovereign Wealth Funds Altering Global Equations

1/2

Sovereign wealth funds: Altering global equations

Prof R Vaidyanathan | DNA, Tuesday, August 7, 2007

Official reserves held by some governments are significantly large and there is pressure on themto earn more than in the traditional mode of investing in US treasury bills.

China stunned the world in May by investing $3 billion in the initial public offering of the largestprivate equity fund Blackstone. Socialism of a Chinese kind!

The total funds at the disposal of sovereign wealth funds (SWFs) are estimated at around $2.5trillion.

More than 20 countries are actively managing their sovereign wealth - among others, China,Singapore (whose Temasek Holdings has always been active), UAE, Norway, Russia, Malaysiaand Taiwan.

There are four major issues relating to SWF, the new kid around the global financial block.

The first is about the concerns of recipient nations. For instance, a part of Barclays bank is goingto be part-owned by China and the oldest super market in Britain, Sainsbury, is getting acquiredby Qatar.

Some experts argue against the strategic or sensitive sectors getting acquired by othersovereign funds.

According to them, this might undermine the concept of nation state, which has been the basisof the global scheme since the Treaty of Westphalia in 1648.

When Japanese private companies acquired real estate and huge complexes in the nineties in theUSA, similar concerns were expressed. Thus, the opposition to government funds might just getstronger.

But, most of the governments have adequate powers to regulate or bar acquisition of thesensitive assets directly by SWFs of other countries.

But, the acquisition could be done in an indirect fashion, like say a China fund acquiring a stakein an American fund, which has control in a London fund, which in turn acquires a part of saySBI using its funds.

That would put to test the ability of regulators in the recipient territories to use know yourinvestor norms effectively.

The equally important issue is the capability of many of the countries to manage their SWFs in aprofessional fashion.

7/30/2019 Sovereign Wealth Funds Altering Global Equations

2/2