Wednesday-Night

21 March 2008
Are sovereign funds a threat?
The Bush administration somehow extracted promises from the governments of Singapore and Abu Dhabi (one of the United Arab Emirates) that they would not use their multi-billion-dollar investments in American companies for so-called “geopolitical goals.” So no, Abu Dhabi will not be trying to make Citigroup collapse in order to bring the American economy to its knees. But did you ever think they would?
I think what’s going on is more politics than economics. Washington is trying to send two signals. First, they want to tell the public that they’re being vigilant, making sure those pesky foreigners don’t take control of the American economy. Second, Washington wants to tell other, perhaps less friendly governments that it’s keeping an eye on their investments - and that Washington might someday try to secure similar promises from them, too. Is it worthwhile? It probably doesn’t hurt, but, then again, investment protectionism can be a slippery slope.
(IHT) Sovereign funds agree to avoid ‘geopolitical goals’ in U.S. investments
Singapore and Abu Dhabi make commitment
February 28, 2008
Suspicion lingers
(The Economist Intelligence Unit) The West lacks enthusiasm for Arab sovereign-wealth funds
Rumours that the Qatar Investment Authority (QIA) may be thinking of buying a stake in Royal Bank of Scotland (RBS) pushed up the share price of the Edinburgh-based bank by 5% on the London Stock Exchange on February 25th, reflecting the intense interest accompanying any move or potential move by Gulf Arab sovereign wealth funds (SWF). QIA had already attracted notice earlier in the month with its acquisition of 1-2% of Credit Suisse, as part of a purported drive to build up a US$15bn portfolio of Western bank assets (a deal that was somewhat tarnished by the Swiss bank’s subsequent disclosure of a hefty US$2.8bn loss arising from trading errors).
Shortly after the Credit Suisse deal, the European Commission (EC) approved proposals for SWFs to be requested to adopt a voluntary code of conduct requiring certain standards of corporate governance and disclosure. The EC president Jose Manuel Barroso has been open about the political dimension. “We cannot allow non-European funds to be used as an implement of geopolitical strategy,” he said on February 24th.
The IMF, for its part, has emphasised the risks to the global economy of increased financial flows through “black boxes”, as the Fund’s chief economist, Simon Johnson.
The irony is that banks in both Europe and the US have not just welcomed but actively solicited investment from the likes of the Kuwait Investment Authority (KIA) and the Abu Dhabi Investment Authority (ADIA)—the world’s biggest SWF with assets estimated at some US$800bn. And in straitened times, politicians too have encouraged such moves by the funds that, buoyed in the Gulf Arab case by record oil revenues, have the ready cash currently so lacking during the Western credit crunch. However, the gathering storm of objections in the West – sometimes quite blatantly born of suspicion of the Arab world – to investment by Gulf Arab SWFs is prompting both the older and younger funds to rebalance holdings geographically, primarily towards the booming economies of southern Asia.
This does not mean that the SWFs are about to shun investment in their traditional hunting grounds in Europe and the US—as QIA’s recent moves demonstrate. Moreover, Gulf investors, both government and private, admit that they will need time to understand the inner workings of the principal Asian markets. However, Western governments and regulatory authorities will need to weigh carefully their concerns about the impact of the SWFs against the risks of forfeiting the benefits that their infusions of capital can bring. Complete article