The Super Seven (SWF)

June 28, 2008

THERE are over 45 SWFs and counting, according to the SWF Institute, an independent US-based think-tank focused on SWF research.

The 'sheer diversity (of SWFs) confounds those...who try to generalise their activities', said Standard Chartered economist Gerard Lyons in his report on SWFs last September.

First up - there is the 'Super Seven', with over US$100 billion in assets each.

Next, mid-sized funds such as those run by Qatar, Brunei, Taiwan and Kuwait.

Bringing up the rear are new kids on the block ranging from Botswana to Japan to Saudi Arabia.

Their very apparent differences make it tough to define just what an SWF is. One can start with what SWFs are not: neither national pension funds, nor central banks, or regulators managing reserves.

So that excludes Saudi Arabia's Monetary Authority, with reserves of over US$250 billion, and which also acts as a conduit for US$116 billion of Saudi government funds.

But what about exotic creatures like Singapore's Temasek Holdings, which owns and manages its own assets but is solely owned by the Government?

It is an SWF, going by Mr Lyons' definition: ownership by a sovereign nation-state, rather than a regional or local state entity.

How about the US? It does not have SWFs, but state pension funds like the California State Teacher Retirement System manage over US$180 billion and are active investors.

Abu Dhabi Investment Authority
UNITED ARAB EMIRATES

War chest: US$875 billion

Launch date: 1976

Commanders: Chairman Sheikh Khalifa bin Zayed Al Nahyan (12th son of Abu Dhabi's late patriarch Sheikh Zayed), CEO Hareb Al Darmaki

Recent trophies: Stakes in Citigroup (November 2007, US$7.5 billion) and PrimeWest Energy of Canada (September 2007, US$5 billion)

Strategy: About 70 to 80 per cent of its portfolio is managed by external fund managers. It generally tries to keep equity stakes below 4.5 per cent to avoid disclosure requirements.

Transparency index*: 3



'When people ask what keeps you awake at night, it is trying to avoid investing massively in another Japan in 1990. Are we at the beginning of something similar to what happened to Japanese equities in the 1990s? That is the way we look at the world.'

MR JEAN-PAUL VILLAIN, ADIA's head of strategy, quoted in BusinessWeek magazine this month. The Japanese stock market crashed in 1990 and the value of the Nikkei 225 more than halved over the next decade.





China Investment Corporation
CHINA


War chest: US$200 billion

Launch date: 2007

Commanders: Chairman Lou Jiwei, president Gao Xiqing

Recent trophies: Stakes in Morgan Stanley (December 2007, US$5 billion), BG Group (September 2007, US$250 million) and Blackstone Group (May 2007, US$3 billion)

Strategy: Mr Li Yong, China's Vice-Minister of Finance, has said CIC plans to invest one-third of its capital to purchase Central Huijin Investment Co, which owns China's major state-owned commercial banks. Another one-third will be used to replenish the capital of the Agricultural Bank of China and China Development Bank. The remaining one-third is earmarked for investments in global markets.

Transparency index*: 2

'Our government has never been transparent for 5,000 years. Now we are told we need to be transparent and we are trying...We are regular people. We do not have horns growing out of our head.'

MR GAO XIQING, president of China Investment Corporation, at a conference this year held by the Organisation for Economic Cooperation and Development. He was addressing concerns in the US and Europe about the threat posed by SWFs.


Kuwait Investment Authority
KUWAIT

War chest: 70.21 billion dinars (US$265 billion)

Launch date: Started in 1953 as the Kuwait Investment Board, and became the KIA in 1982

Commanders: Chairman: Mustafa Al Shemali; managing director: Bader al Saad

Recent trophies: Stakes in Halkbank (May 2007, US$209 million); Industrial Bank of China (April 2007, US$720 million); Cevahir Shopping Centre (November 2006, US$750 million); Merrill Lynch (June 2005, US$2 billion).

Transparency index*: 6



'Any fear of sovereign wealth funds is unfounded and unjustified...Recipient countries (of investments from SWFs) are placing handcuffs on SWFs in the form of regulations - termed in the best tradition of George Orwell's Newspeak - by calling them a code of conduct.'

SHEIKH BADER AL SAAD, Kuwait Investment Authority's managing director, at a conference in Luxembourg on April 9



Government of Singapore Investment Corporation
Singapore


War chest: Well above US$100 billion (GIC's website). About US$330 billion (Monitor Group estimates)

Launch date: 1981

Commanders:

Chairman - Minister Mentor Lee Kuan Yew

Deputy chairman - Prime Minister Lee Hsien Loong

Deputy chairman and executive director - Dr Tony Tan

Recent trophies: Stakes in UBS (February 2008, US$10.8 billion), Citigroup (January 2008, US$6.88 billion), Merrill Lynch Financial Centre (June 2007, US$954 million)

Strategy: GIC aims to preserve and enhance the international purchasing power of Singapore's reserves.

Transparency index*: 6



'We regard our investments in UBS and Citicorp as long-term investments which will give us good returns when markets stabilise and economic conditions return to normal levels.'

GIC DEPUTY CHAIRMAN AND EXECUTIVE DIRECTOR TONY TAN



Government Pension Fund - Global
Norway


War chest: US$396.5 billion

Launch date: 1990

Commanders: Norges Bank governor Svein Gjedrem; Norges Bank deputy governor Jan Qvigstad

Trophies: It typically holds small stakes in companies, many below 1 per cent. Stakes include Esprit and Kmart. Stakes in Singapore companies include United Overseas Bank, Banyan Tree Holdings, City Developments and Creative Technology.

Strategy: The fund is run by Norges Bank Investment Management, but makes extensive use of external fund managers.

The fund is shifting to a 60 per cent allocation in stocks from 40 per cent.

It has a panel of experts who evaluate the 7,000 or so companies it invests in to ensure they meet the highest ethical standards.

It has divested stakes in over 25 companies because of their 'unacceptable violations of fundamental ethical norms'. This includes Singapore Technologies Engineering because of its production of anti-personnel landmines.

Transparency index*: 10



'(I earn) less than $500,000. What's your salary?'

MR KNUT KJAER, ex-CEO of Norges Bank Investment Management, in response to a question from a Financial Times journalist about how much he earned in his former position in 2006, and if he personally felt underpaid. To the latter question, Mr Kjaer breezily responded: 'I don't and, you know, if you feel underpaid you should quit.'



Oil Stabilisation Fund and National Welfare Fund
RUSSIA


War chest: US$129.8 billion in the Oil Stabilisation Fund (OSF) and US$32.7 billion in the National Wealth Fund (NWF)

Launch date: 2008

Commander: Finance Minister Alexei Kudrin

Strategy: The OSF is being invested in overseas government and government-backed agency bonds, while the NWF will undertake riskier overseas investments to generate higher returns.

Transparency index*: 5 (for OSF)

'The sovereign wealth funds of the Arab world and Singapore have been buying equities in Europe and America for decades and there was no discussion at all. I find it really strange that when Russia starts discussing such a possibility, we hear a lot of concerned speeches... I don't understand why we hear a lot of voices that demonise our activity.'

MR PYOTR KAZAKEVITCH, head of OSF, in an interview with the Financial Times, published on Sept 18 last year



Temasek Holdings
Singapore


War chest: S$164 billion as of March 31, 2007

Launch date: 1974

Commanders: CEO Ho Ching, chairman S. Dhanabalan, executive director Simon Israel

Recent trophies: Merrill Lynch (December 2007 and February 2008, totalling about US$5 billion), Barclays (July 2007, &pound975 million), Bank of China (4.13 per cent stake as of November 2007), Standard Chartered (18.99 per cent stake as of May 2008)

Strategy: For the year ended March 2007, 61 per cent of Temasek's portfolio was in the financial services, telecoms and media sectors. It holds stakes in major listed Singapore companies, including DBS, Singapore Airlines, SingTel and Chartered Semiconductor.

Transparency index*: 7

'We are aware of the need to be far more sensitive in the current environment to investing in industries that may be iconic or have sensitivity from a national perspective.

'Please recognise that we at least believe we are differentiated...We are trying to help people debunk some of the myths around Temasek. There are factors that highly differentiate us from the others.'

MR SIMON ISRAEL, executive director of Temasek Holdings, in an interview with The Independent, a UK newspaper, in January 2008

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* The Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell. Scores are based on 10 criteria, including whether the fund provides up-to-date independently audited annual reports, ownership percentage of company holdings and geographic locations of holdings, and whether it provides total portfolio market value, returns and management compensation.

SOURCES: Monitor Group's report 'Assessing the risks: the behaviours of SWFs in the global economy', (June 2008); annual reports of Temasek Holdings; Government Pension Fund - Norway; websites of Temasek, GIC, Abu Dhabi Investment Authority; Thomson Financial; Reuters data; Bloomberg data; Citigroup Global Banking: 'Sovereign Wealth Funds: A Growing Global Force,' (Oct 18, 2007); Goldman Sachs Economics Paper: 167 - 'In defence of Sovereign Wealth Funds' (May 21, 2008); Sovereign Wealth Funds Institute.