Monday, 24 March 2008

Sovereign wealth funds - friend or foe?

Interesting to see that sovereign wealth funds (SWFs), which at one time looked set to become the next bête noire of the capital markets (after hedge funds, and then private equity) are now being talked up as a potentially stabilising force. The idea is that these funds ought to be long-term investors, and as such maybe able to provide what we used to call 'patient' capital.

SWFs were given the thumbs up by the WEF at Davos recently, see this press release. More interesting is the statement from the International Corporate Governance Network (ICGN) on their website (third link down in the 'What's new' section). According to the ICGN "sovereign wealth funds share the economic objectives of traditional long-term institutional investors such as pension funds and insurance companies."

The funny thing is that I'm fairly sure that the ICGN had a veiled dig at SWFs not so long ago (I will check this out). If my memory is accurate there was a bit of concern about political interference. If I am right maybe the ICGN just changed its collective view, as other have done.

To make a fairly obvious point as with hedge funds, and to a lesser extent private equity, it's a bit misleading to see SWFs as an homogenous group. They have different histories, even different investment objectives, and, obviously, originate from countries of varying politics. Therefore any labour movement response probably needs to work case by case. Also from my limited reading on SWFs it seems pretty clear that their collective assets are still substantially smaller than pension funds. So whilst they are important, and we should keep an eye on them, we shouldn't overestimate their role. As I said at the outset they are probably attracting policy interest these days more as a fresh pool of capital than as political threat.

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