After a booming year in 2007, Sovereign Wealth Funds (SWFs) are
expected to see another year of marked growth in their investment
in 2008, said a researcher Sunday.
The SWFs are pools of money derived from a country's foreign
reserves, which are set aside for investment purposes to benefit
the country's economy and citizens.
Accumulated as a result of budget and trade surpluses, they
typically have a higher risk tolerance and higher expected return
than traditional official reserve management.
Currently 36 countries or regions have their SWFs, with some 2.5
trillion U.S. dollars of assets under their management, bigger than
the sums invested in hedge funds and private equity funds,
according to a report by the Standard Chartered.
Abu Dhabi of the United Arab Emirates has what experts believe
the world's biggest SWF, with an estimated value of 900 billion
dollars. Meanwhile, recent news report said Saudi Arabia plans to
establish a SWF that is expected to dwarf Abu Dhabi's assets to
become the new number one in the world.
These funds, though still much smaller than official foreign
currency reserves of their owner countries, are expected to grow
rapidly to exceed the reserves in a few years, said Yuan Huaizhong,
a researcher at the Research Institute for Fiscal Science, a
leading financial research body in China.
If they keep growing at their present pace, their total value
would reach 13 trillion dollars over the next decade, predicted
Martin Wolf, chief economic observer of the Financial
Times.
The SWFs, owned by sovereign entities in countries such as
Singapore, Russia, Norway, Japan and China, have contributed
significantly to the world economy, said Yuan.
They have played an increasingly active role in channeling
capital to companies in need, adding tremendous liquidity to the
markets they invest in and helping countries with the optimal
allocation of resources, he said.
The SWFs usually adopt a long-term approach, and choose to
invest in economic entities, said the researcher.
With their operations more stable than other funds, they bring
more benefits to greater numbers of countries and their people, he
said.
That was best demonstrated in their role to address the
aftermath of the U.S. subprime mortgage crisis which began in
mid-2007, said Yuan, noting the SWFs have poured money into those
Western companies hard hit by the crisis.
In the past few months, the SWFs have injected about 29 billion
dollars to help prop up the balance sheets of troubled banks, such
as a 10-billion-dollar investment in the UBS by the Singapore
Investment Corporation, a 7.5-billion-dollar investment in
Citigroup by the Abu Dhai Authority, a stake of up to 5 billion
dollars in Merrill Lynch by Singapore's Temasek and a stake of 5
billion dollars in Morgan Stanley by the newly-founded China
Investment Corporation.
Hailing the SWFs as the savior of the financial world,
investment bankers have hoped these funds, with permanent capital
and deep pockets, will step up to fill the gap in the merger and
acquisition activities created by the slowdown in the private
equity industry.
Biased by protectionism in some countries
However, the SWFs' development has been biased by investment
protectionism and finance protectionism of various kinds in some
countries.
China, who set up its first SWF in late September last year, has
called for a fair and objective perspective on the SWFs.
The SWFs, as they also are market-oriented, should enjoy the
same treatment as the other institutional investors, said Wei
Benzhong, deputy director of the State Administration of Foreign
Exchange of China, while addressing an economic forum in late
December last year.
The Chinese official also said neither such funds from the
developing countries nor from the developed countries should be
discriminated against in the market.
They should get equal treatment, competing on an even
playground. The developed countries and the developing countries
should open their markets under the principle of equality and
reciprocation to create a win-win situation.
Financial Times' Wolf also rebutted those who regard the SWFs as
a threat instead of an investor, saying many SWFs should raise no
concerns.
"My broad recommendation, then, is to consider the emergence of
these funds as part of the integration of countries that accept a
bigger role of the state in markets than Western countries do
today," Wolf said.
"It is absurd to take a country's exports of oil and refuse to
allow it to buy assets in return," he added.
(Xinhua News Agency January 13, 2008)
