The multi-trillion dollar financial vehicles stalking the world's markets
MONEYwise with Martha Myron
Sovereign wealth funds rule the world: Is this the largest change in financial influence in our lifetime? According to an excellent article in The Sunday Times (October 28) by Ben Laurance and Louise Armitstead, the power of sovereign funds is rising and those funds backed by foreign states could have $12,000 trillion to invest by 2012.
The financial muscle of these vehicles, their lack of transparency and their unknown motives are now causing alarm in the West.
There may be concern in some quarters of the global investment world, but it sure seems to depend upon what financial industry spokesperson is making the commentary, what type of investment will be made into a US or other country institution, and who stands to ultimately benefit from these asset acquisitions.
In a simplistic generic sense, sovereign funds were originally established by natural resource and commodity producing nations to hold sovereign debt, another word for high-grade bonds, payments from the Unites States, United Kingdom and other strong developed economies.
Often, a secondary motive for their creation was to accumulate wealth to fund future economic benefits programs such as pensions, in the country of origin.
As the funds grew and the yields on the underlying positions failed to generate adequate returns, these increasingly sophisticated managers have turned to outright asset acquisition.
Using the billions in excess profits from oil and other related businesses, sovereign funds have been popping up in many different finance centres and markets.
Norway has possibly the oldest, and almost the largest sovereign fund instituted to provide social services and pension care for its citizens. Along with more recent funds developed in Canada, these are considered models of transparency and management.
Other states, such as Russia, the Middle East, and China are deemed to be operating their funds with very little global accountability, disclosure and transparency in dealing, raising the uncomfortable spectre of large capital market moves destabilising markets and influencing trading outcomes.
Based on reports from various news sources, the following are the recent acquisitions made by these funds: "$3 billion stake in the US Blackstone group by China", "$7 billion dollar cash flow infusion into Citigroup by the Abu Dhabi Investment Authority ", "Five percent stake in Ferrari ", "$5 billion position in PrimeWest Energy Trust of Canada ", "$8 billion stake in Daimler by KIA - Kuwait ", "$8 billion into the Congo" , "$5.5 billion into Standard Bank, Africa's largest" , "Three percent stake in Barclays" and so on by various Chinese entities.
In the US there was a storm of protest when a deal was brokered for a Middle East consortium to purchase US seaports. Almost 20 percent of the NASDAQ stock market is owned by Dubai, along with percentages of Barneys, a Chinese group tried to purchase one of the US's largest oil companies.
Without questions, the amounts of petrodollars out there looking for good value are massive. The Times has also stated in another article that there is increasing concern in Britain over the influence of sovereign funds.
About half the shares in the London Stock Exchange are already held by Qatar and Dubai, with the former close to acquiring J Sainsbury, the supermarket chain. We don't know where going down this slippery slope will take us.
Given the lack of transparency and the potential for political manipulation behind these acquisitions, it is certainly interesting to see the thought process coming to the fore in Western country leaders.
Many financial luminaries have stated that controls and transparency need to be put in place, but will those who have the financial power listen?
And will those who don't still have enough clout to put these reforms through. The obvious question remains. How are nations and companies who have managed to place themselves in deficit positions going to develop strategies to remain inviolate?
Because if you don't have the cash, you are certainly vulnerable. The West still has the ability for financial innovation and strategic countermeasures. Nevertheless, no one wants to wake up some morning to find out that half their country belongs to somewhere and someone else.
Stay tuned, and read everything you can find on this subject. It is a hot one.
Martha Harris Myron CPA -NH1929, CFP® -67184 (US licenses) is a dual citizen (US and Bermuda). She is a Senior Wealth Manager and Certified Financial Planner™ practitioner at Argus Financial Limited, specializing in comprehensive financial solutions and investment advisory services for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294 5709 Confidential email can be directed to mmyron[AT]argusfinancial.bm
The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.
