Let’s start the “Boogie Man” conversation with an editorial by Blackstone’s (BX) Steve Schwartzman
“Gao Xiqing, the president of China Investment Corporation, China’s sovereign wealth fund, spoke last week of his frustration that CIC’s attempts at investing outside China sometimes run into political opposition. He went on to add, in words that should act as a chilling wake-up call to many politicians and bankers: “Fortunately there are more than 200 countries in the world. And fortunately there are many countries who are happy with us.” ”
Recently I spoke with Drosten Fisher from the Monitor Group. They recently released their comprehensive research report on Soveriegn Wealth Funds (SWF’s).
Monitor Group collected and investigated data on 1,181 sovereign wealth fund transactions involving 25 funds from 1975 through March 2008 – compiling the most complete source of publicly-disclosed sovereign wealth fund transactions assembled to date. To allow for more comprehensive analysis, filters were applied to the data, leaving 17 funds, with a total of 785 deals and $251 billion of investments made between 2000 and 2008. The bulk of these transactions originated in the Middle East and Asia.
The results ought to surprise a whole bunch of people. The investment behavior of SWFs to date suggests the funds are driven primarily by financial objectives-they do not appear to be investing for political motives. While some funds are making strategic investments to hasten economic development in their home countries, Monitor found no evidence that SWFs, especially the highly scrutinized Middle East and East Asian funds, were active in ways that threaten the economic or national security of the countries where they invest. Investments in transportation, defense and aerospace, and high technology make up less than 1% of the value of deals in Monitor Group’s data base
SWFs do take controlling stakes in companies. In contrast to prevailing views, half of publicly-acknowledged SWF transactions since 2000 resulted in majority-stake acquisitions. However, by far most of these transactions have occurred in domestic and emerging markets and in sectors such as consumer products and services and industrials not generally considered politically-sensitive.
Now, with all that being said, SWF’s do not really help themselves. While I can buy Schwartzman’s argument that “the current talk of disclosure requirements is seen by some SWFs as problematical since it often fails to take into account the political realities in some of the countries managing SWFs, where their ties to the west are best left unstated lest they arouse domestic political opposition.” certain actions, are hurting them.
Abu Dhabi’s SWF for example, will not even disclose the size of its fund. It gets hard for people to fully trust your motives when you will not even disclose the size of your fund.
Sheikh Khalifa told Al-Nahar, a Lebanese newspaper, that the $800bn figure does “not reflect the truth and the size of Emirati investments abroad” but would not give any further indication of how big Adia was.
“Regardless of the numbers and estimations, however, the sovereign funds, which you have referred to, operate according to economic principles, not political considerations,” Sheikh Khalifa was quoted as saying. “We have made that clear to our partners in international markets. We work in accordance to investment opportunities available to us in all markets.”
The Sheikh is asking a skeptical world to “just trust us” without giving a tangible reason to. When skeptical people cannot get answers, fear reigns and we get actions like the Dubia Ports fiasco.
It comes down to an issue of trust, while we may never, according to Drosten required SWF’s to adhere to US disclosure standards, SWF’s could perhaps put the issue to rest by disclosing some basic information?
Please read the full Monitor Report. It is clearly the most comprehensive report on the subject to date.
About Drosten:
Drosten Fisher is a principal with the international strategy consultancy Monitor Group. His focus is serving government and commercial clients in the areas of economic competitiveness, national security and international finance. A Middle East specialist, he speaks Arabic and has lived and worked in the region. Before joining Monitor, Drosten was a researcher for former Director of Central Intelligence George Tenet on his memoir At the Center of the Storm.
He was educated at Oxford and Georgetown and is a term member of the Council on Foreign Relations.Drosten is a co-author of a recent Monitor report into sovereign wealth fund investment and is a regular speaker and commentator on Middle Eastern investment, politics and business.
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