Monday, November 19, 2007

Sovereign funds

Two articles about these huge funds. Here's the first, by Economic Principals' David Warsh:

... As long as these vast sums of money are managed professionally and transparently, they will be no different from any other large pool of wealth -- pension funds, insurance portfolios, mutual funds. They may, of course, be used for strategic purposes instead: to buy controlling interests in companies that may be deemed inappropriate for one reason or another. China buying IBM's laptop business is one thing; but what if China sought to buy Microsoft? Or Boeing? What happens when state-dominated enterprises like Russia's natural gas giant, Gazprom, seek to enter new markets? The possibilities for mischief here, not to mention losses, are very real.

And here's the second, by New Yorker's James Surowiecki:

... While these funds are not new—they first rose to prominence in the seventies, as a way for Arab states to reinvest their oil money—of late they’ve become major players in global markets, thanks to the precipitous rise in oil prices and the booming Chinese economy. China’s new sovereign fund alone has two hundred billion dollars to invest, while sovereign wealth funds all together control more than two and a half trillion dollars—and could control as much as twelve trillion by 2015. These funds now have the buying power to shape market prices and acquire assets throughout the developed world. Were China’s fund so inclined, it could buy Ford, G.M., Volkswagen, and Honda, and still have a little money left over for ice cream.

Not surprisingly, Western politicians aren’t thrilled by this prospect. ...