Maximizing returns long-term may only be the stated goal of foreign governments in creating SWFs.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Most sovereign-wealth funds (SWFs) got an invitation of this sort between November 2007 and January 2008.
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SWFs are state-controlled entities consisting of various financial products such as stocks, bonds, and other liquid assets.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Market analysts speculate that the SWFs are betting that Japanese companies will be substantial beneficiaries of the incipient global recovery.
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SWFs maintain a distinction from run of the mill foreign direct investment in that SWFs are by definition state controlled.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
As economies of the world aggregate, monitoring the growth and operation of SWFs becomes an ever-more delicate and indispensable task.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
"The SWFs of tomorrow are likely to be more interested in strategic companies that possess higher-tech capabilities or techniques, " said Jen.
During the recent commodities' boom, resource-rich countries have sought to escape the curse by pouring natural-resource income into sovereign-wealth funds (SWFs).
The IMF considers such cautious views of SWFs egregiously wrong as protectionism.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
In a way, the public nature of the SWFs--that they are funds operated by their governments or rulers--makes for a unique public-private synergy.
But, while they may be coming under more intense scrutiny, sovereign wealth funds (SWFs) should not be seen as a nefarious influence in global markets.
The IMF addressed the issue of SWFs at their most recent meeting in October, but they failed to even acknowledge that SWFs pose a national security risk.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
The true intentions of states in creating SWFs can be masked under the veil of economic interest, while offering cries of protectionism as an antidote to security concerns.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
At the very least, SWFs can revisit how they will represent themselves in the years ahead if and when such positions do indeed become increasingly aggressive and public.
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The argument that countries holding SWFs will have too great an economic interest to use such transactions as anything beyond furthering their own economic interest does not hold water.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Cash reserves that have funded SWFs have accrued from several sources such as foreign currency deposits, gold holdings, Special Drawing Rights, petroleum, and state pensionsSWFs are essentially a byproduct of globalization.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Even if the SWFs do not become as big as some had projected, might they become more gung-ho, gradually moving out of safe investments like American Treasury bonds into riskier equities and alternative assets?
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However, SWFs present a parlous and menacing quandary.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Governments possessing large cash reserves are now looking to maximize returns long-term and are doing so by divesting chunks of those reserves from their central bank and creating funds known as sovereign wealth funds (SWFs).
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
United Arab Emirates, Saudi Arabia and Kuwait, the most influential members of the cartel, are home to three of the world's 10 largest SWFs by assets under management, according to estimates by the SWF Institute.
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ECONOMIST: Banks and sovereign-wealth funds: Falling knives | The
So what SWFs do with their skillions is a global phenomenon and will continue to create a pattern of cross-border investments that should bring capital to the places that need steady long-term investors with minority stakes who can wait for years for their investments to pay off.
Placing oil and gas revenue into sovereign wealth funds (SWFs) which invest in businesses in the west has generally been the other form of investment, and in spite of the western financial collapse of 2008-2009, major Islamic SWFs still make most of their investments outside the region.
The irony, or more aptly described telltale sign of the precarious nature of SWFs, is that countries which create and foster SWFs are not countries generally known for their strong belief in or fostering of the principles of capitalism within their own borders, yet they are adamant about exploiting capitalism within the borders of other sovereign nations.
CENTERFORSECURITYPOLICY: The danger of sovereign wealth funds
Last week Chancellor Angela Merkel suggested that a system be set up to filter SWF acquisitions, (See: "Merkel Plays Protector") and earlier this month her finance minister, Peer Steinbrueck, said the government has to pursue an "active industrial policy" to protect German telecommunications, banking, postal, logistics and energy companies, from being taken over by SWFs.
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