RSS feedsA 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.”
