Sovereign wealth deals tactical, not political

A new report from US think-tank
Monitor
says basic assumptions about the political motives of sovereign wealth
funds do not chime with available data on 1,100 deals completed between 1975 and
2008 that reveals investment trends simply searching for good old buy-low,
sell-high deals.

According to Monitor, sovereign wealth deals deemed to threaten economic or
national security of the countries in which they are done make up less than 1%
of the value of all analysed transactions, around $251bn in the new millennium
alone.

A clutch of sovereign wealth investments into financial services companies
done during the credit crunch heightened paranoia that they were targeting OECD
countries while they were weakened. But Monitor’s analysis suggests these deals
were opportunistic, but not strategic.

Additionally, concerns over foreign government-backed funds taking majority
stakes in important companies or sectors in western countries proved to be
unfounded as Monitor’s research found that, though half of all publicly
announced investments made by SWFs were purchases of majority stakes, most of
them happened in their own domestic or emerging markets. They typically invested
in sectors thought low-risk in political terms.

Despite this, there are calls for new regulation of SWFs, with Monitor saying
they would become fixtures in the global financial markets by 2013. “SWFs are
taking progressively greater financial risk into their investment portfolios,”
the report said.

“These governments have a clear financial incentive to continue to work
within the existing architecture of the global financial system and not
undermine it by attempting to use SWF to gain overt political influence. A more
likely risk is that SWF could introduce an unacceptable degree of financial risk
into another country’s market through an overly aggressive investment strategy.”