Are sovereign wealth funds stupid?

18 June 2008

1 minute read

They've lost tens of billions of pounds pouring money into the likes of UBS, Citigroup and Merrill Lynch, and they're still back for more.

Barclays is said to be close to raising 4bn from unknown sovereign sources, thought to include the likes of Singapore's Temasek and China Development Bank.

But China Development Bank has already lost money on the 3% stake it took in Barclays last year. And Temasek is nursing a hefty loss on Merrill shares, which have fallen around 25% since it purchased them last December.

It's clear why banks are courting sovereign investors - existing shareholders have got cold feet when it comes to rights issues, and bringing in an investor from Asia can be dressed up as a strategically advantageous move.

But why would a sovereign fund want to pour its money down the drain? Some say sovereign funds lack the talent to identify better investment opportunities. Is this the case, or do they know something we don't?

AUTHOReFinancialCareers UK

Insider Comment

fa
fatexpatinthesun
26 June 2008
having worked closely with a number of SWF during my time in the industry I know that they employ some top end talent at the moment, not just aged expats looking to while away their remaining years in the sun earning a fat pay cheque for little input. These funds now more than ever are making strategic plays with their reserves. as pointed out above they can afford to take a very long term view and have the kind of liquidity at their disposal that has our distressed financial instituitions falling over one another to welcome onto their books. Ultimately the financial sector greases the wheels of the entire global economy and when we move back into the boom times, these investors will be laughing all the way to the...........
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ex
ex SWF
24 June 2008
They have a long term view and if you have an investment period of 10 years, you are bound to be ahead - even if you did buy Citi stock. Having said that they are not the fastest around the block either..
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Ma
Mark
24 June 2008
It is just a case of finding somewhere to put it all. Also they can take a very long-term view. Something that has always paid off under any circumstances if you are reasonably diversified.
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JJ
JJ
22 June 2008
These funds see banks as a long term investment. Citigroup's shares are lower than they've been for ten years. They may look stupid now, but this won't be the case once financials come out of their current slump.
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Mr
Mr
22 June 2008
Morgan Stanley estimates that sovereign wealth funds have invested $113bn in financials so far. But their total funds are thought to total $3.3 trillion to invest. Goes to show that this is just a drop in the ocean to them.
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