October 03, 2007
Sov Funds, Petrodollars
I believe I display no great prescience in returning to my prediction that Arab Gulf State Sovereign investment funds (state investment funds) will be an emerging scare issue from the same crowd that brought you Dubai Ports World and other silliness.
Rather like a more charged replay of the Japan Inc scaremongering, but with extra xenophobia thrown in.
The most telling commentary though is not the fearful whinging about new regulatory needs or challenges to Western capitalism, rather it is the bolded portion below:
So far, the evidence shows that petrodollar sovereign wealth funds and Asian central banks have focused on returns and “acted cautiously and discreetly” to avoid moving prices, according to the report.
However, some funds in oil-exporting regions have signalled their intent to shift away from being largely passive investors to taking larger equity stakes in foreign companies.
The collective impact of this breed of investors also poses new risks to the global financial system. For instance, the liquidity provided by Asian central banks and petrodollar investors may be fuelling asset price bubbles in some markets, such as real estate, and are enabling excessive lending.
Buying in to assets high, never a very good strategy for making money. I again return to the memories of the squeeling that went on in NY (when I was based there) when the Japanese bought Rockefeller Center.
Got bloody soaked.
Sov funds, I rather suspect more a threat to their owner's long term wealth than global Western style capitalism.
Of course, I rather suspect that the same is true for the institutionals placing money in mega "Emerging Markets" investment funds as hinted in Private equity must delve a little deeper into Asia; quite simply the only way to really invest in "frontier markets" like India, MENA is via smaller funds - or be looking at infrastructure or other quasi PE plays.
Not directly related, but throwing in for attention: Dubai boom in property starts to cool
Posted by The Lounsbury at October 3, 2007 11:49 PM
Filed Under: Biz - Policy & Development
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Posted by: Frandroid Atreides at October 4, 2007 01:34 AM
I can't entirely agree. I think sovereign wealth funds are a disturbing trend for several reasons.
Philosophically speaking, the concept is somewhat perverse. One of the major trends in western economies over the last 30 years or so has been privatization. The British government, having sold it off, would be somewhat bemused to see British Airways being owned by, say, Libya.
Let's face it, many of the countries that have these funds are parasitic rentier states with no understanding of even basic economic principles. They couldn't manage a corner squeegee operation, much less a global corporation.
But the biggest practical objection to these funds is that it is incredibly unlikely that they will be managed strictly for profit. Inevitably, politics will creep into the mix. Whatever you may think of Norway buying into your local grocery chain, you'd have to be barking mad, and a moron to boot, not to have serious concerns about the Russians buying up your energy sector, especially if you're in Eastern Europe.
Posted by: Anonymous at October 8, 2007 06:48 PM