Jan 20, 2015
EYE ON THE ECONOMY
The zoo is the place to study Temasek Holdings' new business strategy - that harks back to its beginnings.
By Lee Su Shyan, Money Editor
BIG-TICKET deals have been the calling card of Temasek Holdings but a shift in strategy could be under way and you only have to go to the zoo to see it.
The zoo might not be the most obvious place one can think of to observe the operations of one of the corporate world's biggest beasts. But, in fact, the investment firm's latest undertaking illustrates how its game plan is evolving.
The high-profile deal involves Temasek partnering the Singapore Tourism Board (STB) to develop the Mandai area, which includes the Singapore Zoo, Night Safari, River Safari and Jurong Bird Park.
It makes perfect sense on one level: Temasek holds a majority stake in Wildlife Reserves, the entity that owns the attractions, so that alone should give it first dibs on any future development.
But look further and the firm's new strategy begins to emerge.
The zoo makeover is not an obvious "Temasek investment" that will generate returns in the next few years but one that will require a long time to come to fruition. It will, after all, take over a decade to develop the entire area.
While the investment giant is still making the big-ticket deals that have marked much of its 40-year history, there is a newer emphasis, less perhaps on immediate returns and more on building businesses for long-term gains.
In some respects it is a return to Temasek's early days when it was a builder of national champions like Singapore Airlines.
Showing posts with label SWF. Show all posts
Showing posts with label SWF. Show all posts
Tuesday, January 20, 2015
Monday, November 10, 2008
Once bitten, twice shy for SWFs: Analysts
Nov 10, 2008
CASH-RICH sovereign wealth funds (SWFs) from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil, analysts said.
Despite fresh opportunities, prudence now prevails as countries that own the funds sit on massive paper losses from investments made just before problems in the US housing market erupted into a full-blown global crisis.
Their multibillion-dollar forays into Western financial giants such as Citigroup and Merrill Lynch appeared to be good bargains but the banking shakeout has since sharply reduced the value of their holdings.
'I think they've been burnt...they are not sure this is the right time and they are more cautious,' said Ms Zanny Minton-Beddoes, a Washington-based editor with The Economist.
Ms Minton-Beddoes, a former economist with the International Monetary Fund (IMF), told AFP: 'They put a lot of capital into financial institutions earlier on and they lost a lot of money.'
Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from SWFs created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialisation in Asia.
The funds have come under increasing scrutiny after making high-profile investments in distressed banks and companies.
They were also criticised as too opaque in their operations and, in some cases, stakes in strategic sectors such as telecommunications were seen as potential threats to national security.
The IMF has estimated that SWFs collectively hold total assets of between US$1.9 trillion (S$2.8 trillion) and US$2.8 trillion, and could be worth US$12 trillion by 2012, while the UN Conference on Trade and Development puts their current holdings at about US$5 trillion.
Mr Christopher Balding, a researcher with the University of California, said SWFs are by nature risk-averse and the ongoing financial turmoil would further accentuate that position. 'The current turmoil will, in my estimation, only reinforce the inherent conservative investment outlook,' he added.
'SWFs are not interested in making more large investments because of how their previous investments have turned out.'
Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corporation (GIC), emerging as sought-after sources of capital by ailing Western financial firms.
In response to AFP queries, GIC and Temasek both said they would continue to explore all investment opportunities but declined to give further details.
Analysts said SWFs from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the cheque book is taken out.
'Western financials need the capital and they (sovereign wealth funds) have the capital... I just think they will be carefully considered,' said Ms Minton-Beddoes.
AGENCE FRANCE-PRESSE
[So here it is: clear statement that the SWF went in too early and got burnt.]
CASH-RICH sovereign wealth funds (SWFs) from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil, analysts said.
Despite fresh opportunities, prudence now prevails as countries that own the funds sit on massive paper losses from investments made just before problems in the US housing market erupted into a full-blown global crisis.
Their multibillion-dollar forays into Western financial giants such as Citigroup and Merrill Lynch appeared to be good bargains but the banking shakeout has since sharply reduced the value of their holdings.
'I think they've been burnt...they are not sure this is the right time and they are more cautious,' said Ms Zanny Minton-Beddoes, a Washington-based editor with The Economist.
Ms Minton-Beddoes, a former economist with the International Monetary Fund (IMF), told AFP: 'They put a lot of capital into financial institutions earlier on and they lost a lot of money.'
Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from SWFs created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialisation in Asia.
The funds have come under increasing scrutiny after making high-profile investments in distressed banks and companies.
They were also criticised as too opaque in their operations and, in some cases, stakes in strategic sectors such as telecommunications were seen as potential threats to national security.
The IMF has estimated that SWFs collectively hold total assets of between US$1.9 trillion (S$2.8 trillion) and US$2.8 trillion, and could be worth US$12 trillion by 2012, while the UN Conference on Trade and Development puts their current holdings at about US$5 trillion.
Mr Christopher Balding, a researcher with the University of California, said SWFs are by nature risk-averse and the ongoing financial turmoil would further accentuate that position. 'The current turmoil will, in my estimation, only reinforce the inherent conservative investment outlook,' he added.
'SWFs are not interested in making more large investments because of how their previous investments have turned out.'
Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corporation (GIC), emerging as sought-after sources of capital by ailing Western financial firms.
In response to AFP queries, GIC and Temasek both said they would continue to explore all investment opportunities but declined to give further details.
Analysts said SWFs from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the cheque book is taken out.
'Western financials need the capital and they (sovereign wealth funds) have the capital... I just think they will be carefully considered,' said Ms Minton-Beddoes.
AGENCE FRANCE-PRESSE
[So here it is: clear statement that the SWF went in too early and got burnt.]
Sunday, June 29, 2008
Laying ground rules for SWFs easier said than done
June 28, 2008
Industry players hold differing views over what form such rules should take
By Grace Ng
WHILE controversy rages on about SWFs, the one thing that virtually everyone agrees on is the need to clarify the rules of the game.
But that is where the common ground ends.
One camp is clamouring for all funds to follow rules to be laid down by the ostensibly independent International Monetary Fund (IMF).
The other camp, largely the SWFs, wants to throw out the rulebook - especially if they do not get a say in crafting the rules on controversial issues such as transparency. They are gunning for a voluntary set of principles.
Most SWFs are quick to acknowledge that there are benefits to common standards that reassure the public of their investment behaviour - the way hedge funds and private equity players had done earlier.
This would be 'the smart move', noted Mr Peter Mandelson, the European Union's trade commissioner, in a recent commentary in The Wall Street Journal.
So, 'a voluntary and limited code of conduct would only formalise what (SWFs) already do...and confound any suspicions' that the funds have political motives.
'Any fund unwilling to sign up to a reasonable code would have trouble explaining why,' he reasoned.
However, SWFs maintain that any international financial guidelines must be formed with the participation of everyone, as Chinese Foreign Minister Yang Jiechi told the media on the sidelines of the annual full session of China's Parliament in March.
Two months later, the IMF set up an International Working Group with 23 member countries, to draft SWF principles. Participants include Norway, China, Russia, Kuwait, Timor-Leste and Singapore.
The group will be meeting on July 18 and 19 in Singapore to discuss the code, slated to be ready by October.
Nonetheless, 'work between the funds and the IMF on such a code has got off to a prickly start', as some funds are 'suspicious of the IMF's motives', admitted Mr Mandelson.
He was careful to stress that 'the IMF is not, and will never be allowed to become, some sort of second International Criminal Court'.
Path of limited disclosure
BUT proactively, some SWFs have already volunteered to follow some rules to avoid the risk of being shut out of markets.
The 'right thing to do is to move to a path of more disclosure', GIC deputy chairman Tony Tan told the media in Davos in January. If issues like disclosure are not addressed directly, the greatest danger is that recipients may raise barriers to hinder the flow of funds, he said.
Singapore's Temasek Holdings and Abu Dhabi have both signed an agreement acceding to some investment principles on March 20, after talks with the United States. These include greater disclosure and ensuring that investments are for economic, not political, purposes.
But GIC, unlike Temasek, is not likely to publish its returns annually and give details of its every move.
Minister Mentor Lee Kuan Yew, who is also GIC's chairman, outlined reasons why the fund should not be too transparent in a Bloomberg TV interview on April 29.
'If you make your moves very clear, people can predict what you will do next, and forestall you or pre-empt you,' he said.
Furthermore, being too transparent may raise people's expectations of the Government to spend GIC's returns. So GIC discloses its profits and losses only over a five-year or 10-year period, said Mr Lee.
Limited disclosure may well be the path the IMF will take in crafting governing principles for SWFs.
Mr Mohsin Khan, IMF regional director for the Middle East and Central Asia, thinks that the code will not go as far as to require that SWFs reveal their investment strategies.
'(That) doesn't seem to be a very sensible business decision...If they reveal their investment strategy, anything they want to buy will become more expensive and anything they want to sell will become cheaper,' he told Bloomberg in Dubai last month.
'To reveal what kinds of assets they're holding, fixed income versus equities versus real assets, that will probably be where we'll wind up.'
Other SWFs are not fully in favour of regulations but are willing to fall in with the rest.
Russia's Ministry of Finance, which manages the National Wealth Fund, is keen to demonstrate that it will march in step with other SWFs. It announced that it will publicly and regularly report on government investing and spending of the fund's capital.
As for the China Investment Corporation's (CIC) armoury, it has committed to no oil, no jets and no guns. CIC has pledged that it will not buy into overseas airlines, telecommunications, oil companies or military companies. Nor will it buy a controlling stake in any company or use its investments to exert influence or steal technology.
But that does not mean CIC will toe the IMF line on SWF legislation. CIC chairman Gao Xiqing has insisted that it should be unnecessary for the IMF to draft guidelines for SWFs.
'That law will only hurt feelings. It's not economic. It doesn't make sense. Politically, it's stupid,' he said in an e-mail quoted by the CBS television network's 60 Minutes. 'If you make... someone singled out as a bad boy, then that becomes a problem emotionally.'
Mr Angel Gurria, secretary-general of the Organisation for Economic Cooperation and Development, appears to agree with Mr Gao.
He told the media last month, after meeting senior Beijing officials: 'We believe that there should not be any legislation or any regulation or any code applied that unduly restricts the freedom of investment, because we would be doing ourselves a disservice.'
Professionalising SWFs
YET others feel that the way forward is not to regulate funds, but to improve the way they are run.
This is the view of Mr Knut Kjaer, former chief executive of Norges Bank Investment Management, Norway's SWF. He wants to shape the SWF debate around how to encourage SWFs to be professionally managed.
'Particular regulations for SWFs would be a step in the wrong direction...The end game is not a universal model,' he argued in a Financial Times column in April.
Given the 'huge variety in purpose' as well as cultural and political considerations for SWFs, there will be different ways to build successful funds, he pointed out.
So the discussion should centre on 'what conditions are needed for the professional management of publicly owned financial assets'.
As the debate about rules of engagement for SWFs rages on, it is easy to forget why SWFs even need to define these rules. The question to ask about SWFs really is: More rules and greater transparency to what end?
�NUS professor Ho Yew Kee argued that it should ultimately be about maintaining efficient markets.
'SWFs are massive funds which may have undue power and thus, there is a need to 'regulate' them to ensure that they do not disrupt any market activities.� Therefore if transparency is framed from that perspective, there is no problem whatsoever,' he said.
Indeed, some rules of engagement that maintain an open financial playing field for all SWFs are what they need to manage and grow their huge war chests for decades to come.
Industry players hold differing views over what form such rules should take
By Grace Ng
WHILE controversy rages on about SWFs, the one thing that virtually everyone agrees on is the need to clarify the rules of the game.
But that is where the common ground ends.
One camp is clamouring for all funds to follow rules to be laid down by the ostensibly independent International Monetary Fund (IMF).
The other camp, largely the SWFs, wants to throw out the rulebook - especially if they do not get a say in crafting the rules on controversial issues such as transparency. They are gunning for a voluntary set of principles.
Most SWFs are quick to acknowledge that there are benefits to common standards that reassure the public of their investment behaviour - the way hedge funds and private equity players had done earlier.
This would be 'the smart move', noted Mr Peter Mandelson, the European Union's trade commissioner, in a recent commentary in The Wall Street Journal.
So, 'a voluntary and limited code of conduct would only formalise what (SWFs) already do...and confound any suspicions' that the funds have political motives.
'Any fund unwilling to sign up to a reasonable code would have trouble explaining why,' he reasoned.
However, SWFs maintain that any international financial guidelines must be formed with the participation of everyone, as Chinese Foreign Minister Yang Jiechi told the media on the sidelines of the annual full session of China's Parliament in March.
Two months later, the IMF set up an International Working Group with 23 member countries, to draft SWF principles. Participants include Norway, China, Russia, Kuwait, Timor-Leste and Singapore.
The group will be meeting on July 18 and 19 in Singapore to discuss the code, slated to be ready by October.
Nonetheless, 'work between the funds and the IMF on such a code has got off to a prickly start', as some funds are 'suspicious of the IMF's motives', admitted Mr Mandelson.
He was careful to stress that 'the IMF is not, and will never be allowed to become, some sort of second International Criminal Court'.
Path of limited disclosure
BUT proactively, some SWFs have already volunteered to follow some rules to avoid the risk of being shut out of markets.
The 'right thing to do is to move to a path of more disclosure', GIC deputy chairman Tony Tan told the media in Davos in January. If issues like disclosure are not addressed directly, the greatest danger is that recipients may raise barriers to hinder the flow of funds, he said.
Singapore's Temasek Holdings and Abu Dhabi have both signed an agreement acceding to some investment principles on March 20, after talks with the United States. These include greater disclosure and ensuring that investments are for economic, not political, purposes.
But GIC, unlike Temasek, is not likely to publish its returns annually and give details of its every move.
Minister Mentor Lee Kuan Yew, who is also GIC's chairman, outlined reasons why the fund should not be too transparent in a Bloomberg TV interview on April 29.
'If you make your moves very clear, people can predict what you will do next, and forestall you or pre-empt you,' he said.
Furthermore, being too transparent may raise people's expectations of the Government to spend GIC's returns. So GIC discloses its profits and losses only over a five-year or 10-year period, said Mr Lee.
Limited disclosure may well be the path the IMF will take in crafting governing principles for SWFs.
Mr Mohsin Khan, IMF regional director for the Middle East and Central Asia, thinks that the code will not go as far as to require that SWFs reveal their investment strategies.
'(That) doesn't seem to be a very sensible business decision...If they reveal their investment strategy, anything they want to buy will become more expensive and anything they want to sell will become cheaper,' he told Bloomberg in Dubai last month.
'To reveal what kinds of assets they're holding, fixed income versus equities versus real assets, that will probably be where we'll wind up.'
Other SWFs are not fully in favour of regulations but are willing to fall in with the rest.
Russia's Ministry of Finance, which manages the National Wealth Fund, is keen to demonstrate that it will march in step with other SWFs. It announced that it will publicly and regularly report on government investing and spending of the fund's capital.
As for the China Investment Corporation's (CIC) armoury, it has committed to no oil, no jets and no guns. CIC has pledged that it will not buy into overseas airlines, telecommunications, oil companies or military companies. Nor will it buy a controlling stake in any company or use its investments to exert influence or steal technology.
But that does not mean CIC will toe the IMF line on SWF legislation. CIC chairman Gao Xiqing has insisted that it should be unnecessary for the IMF to draft guidelines for SWFs.
'That law will only hurt feelings. It's not economic. It doesn't make sense. Politically, it's stupid,' he said in an e-mail quoted by the CBS television network's 60 Minutes. 'If you make... someone singled out as a bad boy, then that becomes a problem emotionally.'
Mr Angel Gurria, secretary-general of the Organisation for Economic Cooperation and Development, appears to agree with Mr Gao.
He told the media last month, after meeting senior Beijing officials: 'We believe that there should not be any legislation or any regulation or any code applied that unduly restricts the freedom of investment, because we would be doing ourselves a disservice.'
Professionalising SWFs
YET others feel that the way forward is not to regulate funds, but to improve the way they are run.
This is the view of Mr Knut Kjaer, former chief executive of Norges Bank Investment Management, Norway's SWF. He wants to shape the SWF debate around how to encourage SWFs to be professionally managed.
'Particular regulations for SWFs would be a step in the wrong direction...The end game is not a universal model,' he argued in a Financial Times column in April.
Given the 'huge variety in purpose' as well as cultural and political considerations for SWFs, there will be different ways to build successful funds, he pointed out.
So the discussion should centre on 'what conditions are needed for the professional management of publicly owned financial assets'.
As the debate about rules of engagement for SWFs rages on, it is easy to forget why SWFs even need to define these rules. The question to ask about SWFs really is: More rules and greater transparency to what end?
�NUS professor Ho Yew Kee argued that it should ultimately be about maintaining efficient markets.
'SWFs are massive funds which may have undue power and thus, there is a need to 'regulate' them to ensure that they do not disrupt any market activities.� Therefore if transparency is framed from that perspective, there is no problem whatsoever,' he said.
Indeed, some rules of engagement that maintain an open financial playing field for all SWFs are what they need to manage and grow their huge war chests for decades to come.
Debate on Sovereign Wealth Funds
June 28, 2008
A force for good?
They are 'not out to make a quick buck'
SWFs - 'Saviour wealth funds'?
This may be a better name for sovereign wealth funds (SWFs), argues the European Union's trade commissioner Peter Mandelson.
His comments were made this month during trips to Abu Dhabi and other Gulf countries for free- trade-agreement discussions.
The positive sentiment about SWFs marks the growing chorus of support for them as benign benefactors, who should be welcomed by governments rather than feared.
Indeed, even those who voiced suspicions against SWFs last year have largely changed their tune now.
The finance ministers from the Group of Eight (G-8) rich nations, who feared that SWFs' rise signalled the onset of 'investment protectionism' some 10 months ago, have acknowledged the positive side of SWFs.
Earlier this month, the G-8 conceded: 'We recognise the benefits of commercially driven investment from government-controlled investors such as SWFs.'
Investment guru Warren Buffett weighed in even more strongly in favour of SWFs.
In his March annual letter to shareholders, he roundly trashed the conspiracy theories indicting SWFs' recent investments in big banks as part of 'some nefarious plot by foreign governments'.
If anyone were to blame, it would be the United States itself, he insisted.
'This is our doing. Our trade equation guarantees massive foreign investments in the US.
'When we force-feed US$2 billion (S$2.73 billion) daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?' he argued.
Indeed, Mr Buffett pointed out that the key agenda of SWFs is more sensible than sinister - how to eke out satisfactory returns.
SWFs have no time to entertain pipe dreams of taking over the world - 'They already have their hands full trying to do a good job, to answer to their citizen shareholders at home,' an executive from an Asian SWF said, on condition of anonymity.
Hence, SWFs, including Singapore's funds, are diversifying outside their own home markets in search of a 'better risk-return benefit', explained Harvard Business School professor Robert Merton in an interview last year.
They need 'to preserve assets for future generations'.
Because SWFs are seeking long-term returns, another compelling argument is they are not out to make a quick buck like other investors.
China's Finance Minister Xie Xuren pointed out that SWFs can act as a balance to the short-term bets made by other investors.
'SWFs' investments are generally long-term, not speculative, so they are beneficial to the growth of investment and the economy,' Mr Xie said on June 17 on the sidelines of the US-China strategic economic dialogue talks.
Still, why go as far as to revere SWFs like China Investment Corporation (CIC) and Temasek Holdings as financial saviours?
Because they were willing to provide a lifeline at very short notice, by injecting much-needed capital into embattled banks, while other investors were fleeing in horror.
SWFs can afford to do so because they can wait for years until these companies recover. Government of Singapore Investment Corporation chairman Lee Kuan Yew declared in a Bloomberg TV interview on April 29 that the fund can hold some investments for two or three decades.
SWFs can 'stand the market volatility well into the long run', since their funds are stable and managed by investment professionals, noted Assistant Professor Yothin Jinjarak at Nanyang Technological University. This makes SWFs uniquely positioned to be stabilising forces amid the current financial turbulence, said the economics lecturer.
And now that SWFs have bought into Western assets, there is even less reason to fear them becoming renegades. After all, they have the same vested interests in ensuring that the global financial system remains stable.
Many SWFs hail from Asia and the Middle East, whose breakneck growth has been partly due to massive exports to the US and Europe.
Imagine a nightmare scenario where the SWFs did not inject capital into Wall Street.
Market confidence hits rock bottom. Liquidity in the financial system dries up. The US recession may well be worse than it is now.
'It is difficult to think of how much worse off we (the US) would be in the current financial crisis without SWFs,' wrote Mr Stephen Schwarzman, chairman of US private equity firm Blackstone, in a Financial Times commentary on June 19.
A recession in the US and Europe would hurt developing countries' growth, so SWFs from Asia and the Middle East have an added incentive to ensure the global economy remains stable - to protect their own economies.
SWF investments can also be good for the Western companies involved, said Shanghai-based economics analyst Jin Zhao.
Take Barclays, for example. Temasek Holdings and China Development Bank (CDB) - in which CIC holds a stake - helped to sweeten the British bank's bid for rival bank ABN Amro last year, by investing in Barclays.
Even after the bid fell through, Barclays was still the winner, having sealed a lucrative five-year deal to become the Chinese government's preferred provider of commodity-market risk hedging.
Indeed, companies looking for access to overseas markets like China may get a golden ticket from the SWFs which invest in them,' said Ms Jin.
While other companies, until recently, took the long road of forming joint ventures or buying stakes in Chinese companies, those with SWF investors may get a short cut.
Blackstone is enjoying access to plum investment advisory roles in China thanks to CIC, which bought a stake of just under 10 per cent in the US investment group.
It has been roped in to advise Chinalco on the latter's role in a merger between Rio Tinto and BHP Billiton to become the world's largest mining company. Chinalco bought a 9 per cent stake in Rio Tinto in January.
And it is not just financial players who sing praises of SWF involvement.
High-fashion US retailer Barneys New York is said to have become an even more premium brand after US$940 million of petrodollars sloshed through its portals from Istithmar, a Dubai SWF, a year ago.
SWFs have won over many critics, after bringing stability and liquidity to the global capital markets.
All these have prompted Mr William Miracky, a Monitor Group senior partner and former Federal Reserve economist, to declare: 'On balance, SWFs are good.' >
A force for evil?
SWFs 'can be a threat to national security'
By Grace Ng
SWFs - danger ahead?
Sovereign wealth funds may have been behaving themselves so far, but do not be fooled, warn political analysts like Mr Alan Tonelson.
'SWF enthusiasts, who eagerly note that the funds so far have provided no concrete cause for concern, are tantamount to teenagers who have begun to start driving under the influence (of alcohol), and brag that they're still alive,' he said.
He was red-flagging the rogue potential of SWFs at the United States-China Economic and Security Review Commission Hearing that discussed the implications of SWFs for national security in February.
'The government must provide the adult supervision,' he urged.
Mr Tonelson is not alone in his mistrust of SWFs and fear that they could 'threaten national security' through their investments in US assets.
In February, 55 per cent of Americans polled by Public Strategies, a US consulting firm, thought investments by foreign governments harmed US national security. Only 10 per cent disagreed.
The poll findings also showed that 'opposition was particularly pronounced to investments in high-tech or financial firms, and to investments by SWFs headquartered in the Middle East or East Asia', noted professor of international politics Daniel Drezner from the Fletcher School of Law and Diplomacy at Tufts University.
Common fears are that SWFs could seek to transfer know-how and technology in Western banks and high-technology companies to their home country, noted Morgan Stanley analyst Stephen Jen.
In other words, SWFs may practise 'state capitalism'.
Dr Gerard Lyons, Standard Chartered chief economist and group head of global research, coined this phrase to describe the 'use of government-controlled funds to acquire strategic stakes around the world'.
Mr Tonelson also speculated that SWFs' control over US assets may give them more diplomatic negotiating power over Washington.
He posed this question: If the financial turmoil persists, would Washington dare to stand up to Beijing if a cross-strait crisis erupted?
After all, the Chinese government holds big stakes in some big American financial institutions, he pointed out.
US Senator Barney Frank was more circumspect: it depends on which country the SWF comes from, he argued.
'I have been asked from time to time what I think about sovereign wealth funds. To some extent, that is like asking me what I think about countries,' he told a US hearing on foreign state investment in the US economy in March.
'Some I like a lot, some not so much. The fact is, sovereign wealth funds are reflections of their countries; some are fine and some make me nervous.'
While he did not name names, other politicians have been more explicit about which countries' SWFs they fear more than others.
Mr Charlie McCreevy, the European Commission single-market commissioner, for one, feels no love from Russia. Likening Russia's state-owned gas monopoly Gazprom to an SWF, he darkly speculated about a new age of industrial espionage, unless funds like those in Russia were handcuffed by rules.
But a more immediate concern is the impact of SWFs' massive financial firepower on the stability of the financial system.
Quintain chairman John Plender highlighted the 'threat these flows pose to high corporate governance standards in the developed world'. He wrote in the Financial Times in January that if SWFs move a lot more money into equities, this may artificially lower the cost of capital.
This may mean that companies that are more lax in their corporate governance standards may still be able to get funding from SWFs, instead of being punished by the market for their sloppiness.
SWFs also contribute to soaring prices of assets and commodities, others charge.
Institutional investors, including SWFs, have been pouring more money into oil and other commodities to hedge against inflation and secure supplies. This may have helped to drive up prices, said analysts like Mr Larry Goldstein, director of the Energy Policy Research Foundation.
On a broader scale, the concern about SWFs reflects a growing uneasiness in the West about the rising power of emerging economies such as China, Russia, India and the Middle East.
The richest SWFs come from developing countries that are fast replacing the rich nations as the powerhouses of the global economy, supplying them with everything from oil to commodities to cheap underwear.
As research consultant Monitor Group puts it: 'There is nervousness about the rise of nations outside the 'club' that has dominated international finance since World War II and the potential corresponding loss of power and influence.'
Indeed, the Group of Eight rich countries met in Germany last September and issued a strident call against 'investment protectionism'.
Others have railed against how prosperous Asian countries like China and Middle Eastern oil producers are using the West's money to take over the West's assets.
They point out that the West had outsourced a lot of production to the developing countries. The latter then sell the cheap goods back to the West and amass trillions of foreign currency reserves. Meanwhile, the oil producers are also getting jetloads of US dollars for barrels of black juice.
Even investment whiz Warren Buffett, an SWF supporter, has been losing sleep over this phenomenon since 2005. He painted the worst-case scenario: the US could end up with a 'sharecropper economy' where Americans largely slog for foreign-owned firms.
This is because the US has to 'give away a little part of the country' each year, as long as it is saddled with massive foreign trade deficits, he said in a letter to shareholders of Berkshire-Hathaway, which he heads.
Perhaps SWFs should resign themselves to the reality that mistrust about their motives will never go away.
This is because of the history of 'misunderstandings, complexity, and obscurity involved' with SWFs, said Mr Knut Kjaer, ex-CEO of Norges Bank Investment Management, Norway's SWF.
'What is true is that there is always a price to be paid for growth, and the fact is that the world relies on financial foundations different from the old model of unipolar American power,' he wrote in an article published in the Financial Times in April.
Still, the balance of power from the West to the Middle East and Asia may not shift drastically yet.
'These new forces of capitalism may finance the leaders of the next century, but they are unlikely to topple them,' said Mr Kjaer.
A force for good?
They are 'not out to make a quick buck'
SWFs - 'Saviour wealth funds'?
This may be a better name for sovereign wealth funds (SWFs), argues the European Union's trade commissioner Peter Mandelson.
His comments were made this month during trips to Abu Dhabi and other Gulf countries for free- trade-agreement discussions.
The positive sentiment about SWFs marks the growing chorus of support for them as benign benefactors, who should be welcomed by governments rather than feared.
Indeed, even those who voiced suspicions against SWFs last year have largely changed their tune now.
The finance ministers from the Group of Eight (G-8) rich nations, who feared that SWFs' rise signalled the onset of 'investment protectionism' some 10 months ago, have acknowledged the positive side of SWFs.
Earlier this month, the G-8 conceded: 'We recognise the benefits of commercially driven investment from government-controlled investors such as SWFs.'
Investment guru Warren Buffett weighed in even more strongly in favour of SWFs.
In his March annual letter to shareholders, he roundly trashed the conspiracy theories indicting SWFs' recent investments in big banks as part of 'some nefarious plot by foreign governments'.
If anyone were to blame, it would be the United States itself, he insisted.
'This is our doing. Our trade equation guarantees massive foreign investments in the US.
'When we force-feed US$2 billion (S$2.73 billion) daily to the rest of the world, they must invest in something here. Why should we complain when they choose stocks over bonds?' he argued.
Indeed, Mr Buffett pointed out that the key agenda of SWFs is more sensible than sinister - how to eke out satisfactory returns.
SWFs have no time to entertain pipe dreams of taking over the world - 'They already have their hands full trying to do a good job, to answer to their citizen shareholders at home,' an executive from an Asian SWF said, on condition of anonymity.
Hence, SWFs, including Singapore's funds, are diversifying outside their own home markets in search of a 'better risk-return benefit', explained Harvard Business School professor Robert Merton in an interview last year.
They need 'to preserve assets for future generations'.
Because SWFs are seeking long-term returns, another compelling argument is they are not out to make a quick buck like other investors.
China's Finance Minister Xie Xuren pointed out that SWFs can act as a balance to the short-term bets made by other investors.
'SWFs' investments are generally long-term, not speculative, so they are beneficial to the growth of investment and the economy,' Mr Xie said on June 17 on the sidelines of the US-China strategic economic dialogue talks.
Still, why go as far as to revere SWFs like China Investment Corporation (CIC) and Temasek Holdings as financial saviours?
Because they were willing to provide a lifeline at very short notice, by injecting much-needed capital into embattled banks, while other investors were fleeing in horror.
SWFs can afford to do so because they can wait for years until these companies recover. Government of Singapore Investment Corporation chairman Lee Kuan Yew declared in a Bloomberg TV interview on April 29 that the fund can hold some investments for two or three decades.
SWFs can 'stand the market volatility well into the long run', since their funds are stable and managed by investment professionals, noted Assistant Professor Yothin Jinjarak at Nanyang Technological University. This makes SWFs uniquely positioned to be stabilising forces amid the current financial turbulence, said the economics lecturer.
And now that SWFs have bought into Western assets, there is even less reason to fear them becoming renegades. After all, they have the same vested interests in ensuring that the global financial system remains stable.
Many SWFs hail from Asia and the Middle East, whose breakneck growth has been partly due to massive exports to the US and Europe.
Imagine a nightmare scenario where the SWFs did not inject capital into Wall Street.
Market confidence hits rock bottom. Liquidity in the financial system dries up. The US recession may well be worse than it is now.
'It is difficult to think of how much worse off we (the US) would be in the current financial crisis without SWFs,' wrote Mr Stephen Schwarzman, chairman of US private equity firm Blackstone, in a Financial Times commentary on June 19.
A recession in the US and Europe would hurt developing countries' growth, so SWFs from Asia and the Middle East have an added incentive to ensure the global economy remains stable - to protect their own economies.
SWF investments can also be good for the Western companies involved, said Shanghai-based economics analyst Jin Zhao.
Take Barclays, for example. Temasek Holdings and China Development Bank (CDB) - in which CIC holds a stake - helped to sweeten the British bank's bid for rival bank ABN Amro last year, by investing in Barclays.
Even after the bid fell through, Barclays was still the winner, having sealed a lucrative five-year deal to become the Chinese government's preferred provider of commodity-market risk hedging.
Indeed, companies looking for access to overseas markets like China may get a golden ticket from the SWFs which invest in them,' said Ms Jin.
While other companies, until recently, took the long road of forming joint ventures or buying stakes in Chinese companies, those with SWF investors may get a short cut.
Blackstone is enjoying access to plum investment advisory roles in China thanks to CIC, which bought a stake of just under 10 per cent in the US investment group.
It has been roped in to advise Chinalco on the latter's role in a merger between Rio Tinto and BHP Billiton to become the world's largest mining company. Chinalco bought a 9 per cent stake in Rio Tinto in January.
And it is not just financial players who sing praises of SWF involvement.
High-fashion US retailer Barneys New York is said to have become an even more premium brand after US$940 million of petrodollars sloshed through its portals from Istithmar, a Dubai SWF, a year ago.
SWFs have won over many critics, after bringing stability and liquidity to the global capital markets.
All these have prompted Mr William Miracky, a Monitor Group senior partner and former Federal Reserve economist, to declare: 'On balance, SWFs are good.' >
A force for evil?
SWFs 'can be a threat to national security'
By Grace Ng
SWFs - danger ahead?
Sovereign wealth funds may have been behaving themselves so far, but do not be fooled, warn political analysts like Mr Alan Tonelson.
'SWF enthusiasts, who eagerly note that the funds so far have provided no concrete cause for concern, are tantamount to teenagers who have begun to start driving under the influence (of alcohol), and brag that they're still alive,' he said.
He was red-flagging the rogue potential of SWFs at the United States-China Economic and Security Review Commission Hearing that discussed the implications of SWFs for national security in February.
'The government must provide the adult supervision,' he urged.
Mr Tonelson is not alone in his mistrust of SWFs and fear that they could 'threaten national security' through their investments in US assets.
In February, 55 per cent of Americans polled by Public Strategies, a US consulting firm, thought investments by foreign governments harmed US national security. Only 10 per cent disagreed.
The poll findings also showed that 'opposition was particularly pronounced to investments in high-tech or financial firms, and to investments by SWFs headquartered in the Middle East or East Asia', noted professor of international politics Daniel Drezner from the Fletcher School of Law and Diplomacy at Tufts University.
Common fears are that SWFs could seek to transfer know-how and technology in Western banks and high-technology companies to their home country, noted Morgan Stanley analyst Stephen Jen.
In other words, SWFs may practise 'state capitalism'.
Dr Gerard Lyons, Standard Chartered chief economist and group head of global research, coined this phrase to describe the 'use of government-controlled funds to acquire strategic stakes around the world'.
Mr Tonelson also speculated that SWFs' control over US assets may give them more diplomatic negotiating power over Washington.
He posed this question: If the financial turmoil persists, would Washington dare to stand up to Beijing if a cross-strait crisis erupted?
After all, the Chinese government holds big stakes in some big American financial institutions, he pointed out.
US Senator Barney Frank was more circumspect: it depends on which country the SWF comes from, he argued.
'I have been asked from time to time what I think about sovereign wealth funds. To some extent, that is like asking me what I think about countries,' he told a US hearing on foreign state investment in the US economy in March.
'Some I like a lot, some not so much. The fact is, sovereign wealth funds are reflections of their countries; some are fine and some make me nervous.'
While he did not name names, other politicians have been more explicit about which countries' SWFs they fear more than others.
Mr Charlie McCreevy, the European Commission single-market commissioner, for one, feels no love from Russia. Likening Russia's state-owned gas monopoly Gazprom to an SWF, he darkly speculated about a new age of industrial espionage, unless funds like those in Russia were handcuffed by rules.
But a more immediate concern is the impact of SWFs' massive financial firepower on the stability of the financial system.
Quintain chairman John Plender highlighted the 'threat these flows pose to high corporate governance standards in the developed world'. He wrote in the Financial Times in January that if SWFs move a lot more money into equities, this may artificially lower the cost of capital.
This may mean that companies that are more lax in their corporate governance standards may still be able to get funding from SWFs, instead of being punished by the market for their sloppiness.
SWFs also contribute to soaring prices of assets and commodities, others charge.
Institutional investors, including SWFs, have been pouring more money into oil and other commodities to hedge against inflation and secure supplies. This may have helped to drive up prices, said analysts like Mr Larry Goldstein, director of the Energy Policy Research Foundation.
On a broader scale, the concern about SWFs reflects a growing uneasiness in the West about the rising power of emerging economies such as China, Russia, India and the Middle East.
The richest SWFs come from developing countries that are fast replacing the rich nations as the powerhouses of the global economy, supplying them with everything from oil to commodities to cheap underwear.
As research consultant Monitor Group puts it: 'There is nervousness about the rise of nations outside the 'club' that has dominated international finance since World War II and the potential corresponding loss of power and influence.'
Indeed, the Group of Eight rich countries met in Germany last September and issued a strident call against 'investment protectionism'.
Others have railed against how prosperous Asian countries like China and Middle Eastern oil producers are using the West's money to take over the West's assets.
They point out that the West had outsourced a lot of production to the developing countries. The latter then sell the cheap goods back to the West and amass trillions of foreign currency reserves. Meanwhile, the oil producers are also getting jetloads of US dollars for barrels of black juice.
Even investment whiz Warren Buffett, an SWF supporter, has been losing sleep over this phenomenon since 2005. He painted the worst-case scenario: the US could end up with a 'sharecropper economy' where Americans largely slog for foreign-owned firms.
This is because the US has to 'give away a little part of the country' each year, as long as it is saddled with massive foreign trade deficits, he said in a letter to shareholders of Berkshire-Hathaway, which he heads.
Perhaps SWFs should resign themselves to the reality that mistrust about their motives will never go away.
This is because of the history of 'misunderstandings, complexity, and obscurity involved' with SWFs, said Mr Knut Kjaer, ex-CEO of Norges Bank Investment Management, Norway's SWF.
'What is true is that there is always a price to be paid for growth, and the fact is that the world relies on financial foundations different from the old model of unipolar American power,' he wrote in an article published in the Financial Times in April.
Still, the balance of power from the West to the Middle East and Asia may not shift drastically yet.
'These new forces of capitalism may finance the leaders of the next century, but they are unlikely to topple them,' said Mr Kjaer.
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, £975 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
----------------------------
* 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.
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