TNR: In Search of Sovereign Wealth

By Brett Keller

Douglas Rediker and Heidi Crebo-Rediker, co-directors of the Global Strategic Finance Initiative at the New America Foundation, have an article entitled “In Search of SWF” in The New Republic. In it, Rediker and Crebo-Rediker argue that skepticism from the US Congress regarding SWF investment is an impediment for investment of badly needed capital by SWFs. However, Rediker and Crebo-Rediker never really establish this point, and never really say what the US can or should do to encourage the funds to make investments against their perceived financial interests.

…the U.S. has done little to attract these investors–and in many cases, has pushed them away. With changing global dynamics encouraging SWFs to take their checkbooks elsewhere, the U.S. needs to act quickly and aggressively to attract its fair share of this much-needed capital.

Certainly, political attention in the United States has been one motivation for the efforts of the International Working Group of Sovereign Wealth Funds and the Generally Accepted Principles and Practices (GAPP) to be released later this month. But without specific examples of how regulation or public skepticism is preventing current SWF investment in the US, a better explanation is that the ongoing financial crisis makes investment in the epicenter of the storm unappealing Based on the losses some funds have sustained on recent investments, their managers have reason to be skeptical.

Several months ago, as the current crisis was in its earliest days, SWFs from Singapore, Abu Dhabi, Qatar, Kuwait, and China stepped up and provided capital injections to several banks including Citigroup, Morgan Stanley, and Merrill Lynch…. KIA has already taken a $270 million loss on its Citigroup investment…. It appears that SWFs may have taken us at our word when we insisted that they should invest for purely financial reasons…

A central component of the GAPP, which the U.S. pushed hard for, is a commitment on the part of SWFs that they will eschew all political considerations in making their investment decisions and focus exclusively on financial ones–an ironic constraint, considering how much we would welcome politically motivated investments in our economy right now.

So basically, Rediker and Crebo-Rediker want it both ways. I doubt they want politically minded investments when the political motivation could be described as nefarious. But they also want SWFs to invest against their own financial interests in order to help us out. It’s too bad there’s no consistent resolution for these desires.

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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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