SWFs: The Bull's Best Friend?

[HenryTo]

Just like a kid asking his/her parents for money, it is always good to be the first in line.

Assuming that China and Middle East are dropping out going forward, there is still Singapore (for a collective total of $500 billion), Australia ($30 billion), Brunei ($30 billion), and possibly Norway ($400 billion). Combined with CalPERS ($250 billion) and CalSTRS ($100 billion), this comes out to be approximately $1.3 trillion including Norway and $900 billion excluding Norway. Assuming an appetite equivalent to around 1% to 1.5% of assets, we are still looking at anywhere from $9 billion to $20 billion in additional funding sources.

The British should hurry up and start calling Norway for funds.

[HenryTo]

Qatar now getting into the act with purchases of Credit Suisse stock - promises that there is at least $15 billion more earmarked for both European and U.S. banks over the next 12 months:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDhPfG8VZL58&refer=home

[rffrydr]

1.3 Trillion=~2billion/day since year 1.

Where the FED model still works implies no relative flight to domestic equities:

http://www.thestreet.com/p/_rms/rmoney/investing/10395938.html


But then who's going to buy the bonds? So far so good:

http://www.bloomberg.com/apps/news?pid=20601087&sid=ak06w7ay93CU&refer=home
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

3com deal pulled: The SWF pushback?

http://www.mercurynews.com/business/ci_8313364
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

France and Japan now thinking of setting up their own sovereign wealth fund, although as the article mentions, the former probably won't get very far:
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Thu, 21 Feb, 12:16 GMT

FOCUS Developed countries consider joining sovereign wealth fund fray

France and Japan have said they are looking at setting up their own SWFs to promote active investment and higher returns for public money.

LONDON (Thomson IM) - In order to compete with increasingly aggressive sovereign wealth funds from Asia and the Middle East, some developed countries are considering setting up their own national champions, although results are likely to be mixed at best.

Major industrialised countries have long been in a bind over how to treat foreign state-owned investment funds: they want the money to ride out what is a developed-world financial crisis but they could also do without the political strings attached.

Now, both France and Japan have said they are looking into the option of setting up their own sovereign wealth funds (SWF) to promote more active investment and higher returns for public money.

French Finance Minister Christine Lagarde told national radio this week that 'it is perfectly possible and interesting to envisage the Caisse des Depots et Consignations (a domestic investment fund) as a sovereign fund, including the assets that the French state owns today.'

The underlying motivation remains the same -- to increase returns and keep foreign states from owning key parts of their economies -- but experts warn that they may not be very successful, especially in Europe or the US.

'France in particular is trying to give the impression that they'd play in the same league (as SWFs) but they don't,' simply because they do not have the necessary reserves, said Stephen Lewis at Insinger de Beaufort.

SWFs use capital accumulated through economic imbalances -- current account surpluses and foreign exchange intervention -- to fund their investments, causing resentment from governments who see the reinvestment of this money as indirect political influence.

At the same time, however, these SWFs have stepped into the global economic scene when they were most needed, providing valuable cash infusions to companies buckling under the strain of multi-billion dollar subprime-related write-downs.

Citigroup Inc wrote off 18 bln usd in the fourth quarter due to bad loans, but tried to offset that by raising another 10 bln, mostly through selling a stake to a Dubai SWF. Merrill Lynch & Co Inc did much the same.

And the sums invested by SWFs have been increasingly exponentially. In China's case, with about 1.5 trillion usd in currency reserves, its investments in US companies multiplied from 36 mln usd in 2006 to 9.8 bln usd last year.

In the past, such large investments were often blocked, mostly on national security grounds, by lawmakers.

However, calls for free trade and flow of goods and capital, not least by the US itself, have made it difficult for governments to block SWF investments as long as they are transparent in their dealings.

The G7 and the International Monetary Fund have called for a code of best practice to be established for SWF investments in order to avoid protectionism.

'We must not allow the discussion on SWFs to be used as an excuse to raise unjustified barriers to investment and the free movement of capital,' Charlie McCreevy, European Union internal markets commissioner, said in a speech in London last month.

This has not stopped national EU policymakers, particularly in France and Germany, from rattling their sabres.

'There is a lot of political posturing, but how far politicians would go to block SWFs depends very much on the country,' said Gilles Moec, economist at Bank of America.

Australia's prime minister said this week that SWFs would undergo close scrutiny for any possibility of political manipulation and that assets that are crucial to national security would remain off-limits.

Officially, France or Germany could do little to enact official laws blocking SWFs, as they would have to pass through EU legislation, where countries like the UK, Ireland, or Luxemburg have no problem with SWFs.

But in practice, European governments could do enough to keep foreign SWFs from trying to invest.

'France's state-owned agencies could be used for extra cash injections (in companies) and could be a way to shut the door on SWFs,' said Moec at Bank of America.

Simply by virtue of having first pick in a national investment opportunity, a domestic SWF would discourage foreign funds from trying, Moec said.

But beyond the domestic realm, as a competitor to the Middle Eastern and Asian SWFs on the international scene, the French fund would not get far.

This is simply due to the fact that many of these developed countries have current account deficits which are funded by foreign investment.

Rather than have reserves to spend, they need cash to keep their economy running and there is little surplus 'wealth' with which to fund a sovereign wealth fund.

Neither France nor any other EU country 'has even remotely the size of reserves it would require to compete' with SWFs from China, the Middle East or Russia, said Lewis at Insinger de Beaufort.

[diesel]

EU wants to set up a code of conduct for SWFs.
http://www.ft.com/cms/s/0/8e027d76-e175-11dc-a302-0000779fd2ac.html?nclick_check=1

[HenryTo]

Something to keep an eye on going forward, but at this point, the options are nowwhere close to being exhausted yet. $10 billion or so can be raised quite easily from the likes of Qatar, Singapore, CalPERS, CalSTRS, etc (the latter two have made it clear that they are interested in these investments going forward). Moreover, Citigroup can continue to raise capital by selling assets - although they would have to do it at fire sale prices.
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Sovereign Funds May Not Save Citigroup
Tuesday March 4, 12:12 pm ET
Citigroup Shares Drop After Dubai Fund Says Mideast Sovereign Wealth Funds May Fail to Save It

DUBAI, United Arab Emirates (AP) -- Citigroup shares dropped more than 6 percent Tuesday after the head of Dubai International Capital said that Mideast sovereign wealth funds may fail to save Citigroup unless more cash is pumped into the bank.

Samir al-Ansari, chief executive of the $13 billion government-owned investment firm, said at a private equity conference that it will take more than the combined efforts of the Gulf's wealthiest investors -- the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal -- to save the U.S.-based bank.

Citigroup shares, which have lost about third of their value since November, dropped another 6.4 percent to $21.61 on the New York Stock Exchange. The intervention of Gulf countries awash with cash from record oil earnings has failed to stem the decline seen since last year, triggered by Citigroup's $11 billion subprime write-down last year.

Last year, the Abu Dhabi Investment Authority, a sovereign wealth fund owned by the ruling elite of the United Arab Emirates, the world's fourth-largest oil exporter, pumped $7.6 billion into Citigroup for a 4.9 percent stake. Earlier this year, the Kuwait Investment Authority announced a $3 billion investment in the bank.

But al-Ansari said "it would take a lot more money to rescue Citigroup," Dow Jones Newswires reported on Tuesday. He said more write-downs were expected and Gulf investors would be required to bolster Citigroup.

Dubai International Capital is an investment firm controlled by Dubai's ruler Sheik Mohammed bin Rashid al Maktoum. It already owns stakes in HSBC Holdings PLC and Standard Chartered PLC. Last year, Dubai International Capital also bought a 3.12 percent in European Aeronautic Defence & Space Co. NV, the parent of planemaker Airbus.

In January, Citigroup reported loses of almost $10 billion in the fourth quarter, spurred by $18 billion in write-downs. Citigroup said it planned to raise $14.5 billion in capital by selling stakes to wealthy Gulf investors, including Saudi Prince Alwaleed, the lenders' largest single shareholder.

[rffrydr]

Yes, and they're setting up a congressional oversight programme here....just when they could "breathe easy."

There's a tone of defiance in that Dubai pronouncement. I hope they're talking their book.
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

...And China doesn't like it.

http://www.thomsonimnews.com/story.asp?storycode=36113


...But:

http://www.marketwatch.com/news/story/china-life-eyes-stakes-western/story.aspx?guid=%7B0401509D%2DA1BB%2D46A7%2D9304%2DE5AA631C80D0%7D

Funny; we've gone 360 since the CAF stake.
_________________
Today is the Tomorrow you worried about Yesterday!

[diesel]

Alpha Sources with some thoughts on the emergence of the SWF.

http://clausvistesen.squarespace.com/alphasources-blog/2008/4/4/swf-money-to-invest-or-to-spend.html

[HenryTo]

Christian Cambier of Prigest on the importance of SWFs going forward:

http://www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=300723

[HenryTo]

London to woo investments from sovereign wealth funds:

http://www.ukinvest.gov.uk/OurWorld/4029387/en-US.html

[rffrydr]

The stories lately have been bid rejections. In fact, it is the central quandary for Australia's mandarin speaking Rudd, who's economy grew faster last year than his best customer--who would become it landlord:


http://www.ft.com/cms/s/0/98b2917e-05cf-11dd-a9e0-0000779fd2ac.html

Japan, still the largest customer for iron-ore (surprise) expanded by apology. That won't happen this time.

As for the financials, the Chinese are skeptical: they have that they went hunting rabbit, and it rose up and tried to hunt the hunter! Latey, they take pride in the "simplicity" of their banking institutions, saying of the securitization mess: we could never have gotten into that.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

If Lee Kuan Yew wants to make the investment, then rest assured that it would get done:

http://www.bloomberg.com/apps/news?pid=20601087&sid=adRAI4E4mnBQ&refer=home

[HenryTo]

Report says fear of SWFs overblown, although it admits that the data they examined was only "the top of the iceberg." What is more interesting - at least to us - is the fact that SWFs have continued to diversify into riskier asset classes, such as buyouts and real estate:

http://www.guardian.co.uk/business/feedarticle/7567052