Temasek: Doubling Down on Merrill Lynch

by Ashby Monk

Singapore’s Temasek is doubling its bet on Merrill Lynch, investing an additional $900 million (along with a rebate of roughly $2.5 billion on their past investment) into the struggling financial giant.

Given the widespread losses SWFs have had on US financial institutions over the past year, seeing another large, strategic investment is surprising.  Temasek had already lost roughly half of its past investment in Merrill.

On the flip side, Temasek could potentially be looking at a 15% stake in the U.S. giant when all is said and done. For those with a long-term view, this could be very attractive…

2 Responses to “Temasek: Doubling Down on Merrill Lynch”

  1. 1 SWB July 29, 2008 at 1:36 pm

    I believe this pattern behavior of SWFs investing in troubled US financial institutions is aimed at one of two goals. Since SWFs are the investment vehicles of mostly developing nations, they tend to invest for long-term as opposed to riskier, short-term investments. These funds will utlimately assist countries who have dependence on oil revenue as members of industrialized nations turn to alternative sources of energy and their demand for oil diminishes. Therefore investing in financial institutions has the potential for good long-term returns on their investment. However, it could also be viewed as a form of economic warfare. By gaining control of these institutions, many countries who do no share the same democratic principles as the US now have a larger presence in the geopolitical theatre. The phrase of the moment in the US is “Too big to fail” and when these funds hold large shares of financial instituions, that will be a consideration the US will have to make in matters of foreign policy.

  2. 2 SWB July 29, 2008 at 4:11 pm

    There are many academics who would testify to this, I had the privelege of hearing Dr. Jagdish Bhagwati of the CFR affirm this stance before the Senate Foreign Relations committee. However, in my earlier post I was not using “warfare” in the sense that these investments are attacks, rather, I was suggesting that these investments are struggles for power. Because of the permeable membrane of gloabl finance, foreign policy decisions have to be made with this consideration. You are correct in your assesment that the SWFs would profit from success in US financial institutions. However, I would argue that while failure of these institutions would be detrimental to the US, SWFs and their host nations would not be equally affected.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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