Some Fed testimony today shed light on the fallacy that we ought to fear Sovereign Wealth Funds power….In fact, they are less powerful than insurance companies, pension funds ans US mutual funds.
From the testimony:
“One of the reasons that sovereign wealth funds have attracted more attention in the past year is their size. The largest funds are very large. For example, Norway’s sovereign wealth fund reports total assets of over $350 billion; China’s fund and Singapore’s two funds each manage assets of at least $100 billion. This places sovereign wealth funds among the largest investment funds worldwide. However, while the estimated $2 to $3 trillion sovereign wealth funds manage exceeds the $1.4 trillion managed by hedge funds, it is much less than the over $15 trillion managed by pension funds, the $16 trillion managed by insurance companies, or the $21 trillion managed by investment companies.1 It is an even smaller fraction of global debt and equity securities, which exceed $100 trillion.”
“Since August 2007, U.S. banking organizations have raised approximately $100 billion in new capital (Citigroup (C), Merrill Lynch (MER), Bear Sterns (BSC), Wachovia (WB) and others). During this period, sovereign wealth funds have been an important source of capital for U.S. financial institutions. Sovereign wealth funds made direct investments totaling more than $30 billion in U.S. financial firms, including approximately $17 billion in commercial banking organizations. “
“Sovereign wealth funds, like private investment funds, U.S. state investment vehicles, hedge funds, private equity firms, and many other investors, have generally made investments at levels that are not large enough to trigger the thresholds for review and approval by the federal banking agencies under the federal banking laws. If a sovereign wealth fund were to make an investment in a U.S. banking organization that triggers one of these thresholds, the application would be evaluated by the Federal Reserve or other appropriate federal banking agency under the relevant statutes with no preference or handicap relative to other investors. Any sovereign wealth fund controlling a U.S. bank or bank holding company would be required to operate subject to the limitations on affiliate transactions in sections 23A and 23B of the Federal Reserve Act and the bank or bank holding company would be subject to the full range of regulatory and supervisory tools available to the Board.”
Short explanation? While a growing entity, their actual power is dwarfed by existing institutions. When you also consider the percentage of ownership is small, their actual ability to effect meaningful change or assert influence in the institutions they take stakes in has to be questioned. Especially if that attempt runs contrary to investors wished.
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