Sunday, June 10, 2018

EU's Mandelson: SWFs = "Savior Wealth Funds"

I was monitoring Bloomberg when an interesting story scrolling on the ticker caught my eye entitled "EU's Mandelson, Airbus's Enders See 'Savior' in Sovereign Funds." It seems the intrepid EU Trade Commissioner and the Airbus big kahuna Tom Enders have recently been to China. While there, they reckoned that sovereign wealth funds (SWFs) ought to take a bigger role in global economic affairs by using their funds to help cushion the blow from the ongoing credit turmoil by--you guessed it--providing Western firms with increasingly scarce funding.

Nevermind that the SWFs came a cropper riding to the rescue of ailing Western banks in 2007 as the share prices of these banks had much more to fall. What Mandelson and Enders seem to imply here is, "Hey, so you got burned investing in the smoke and mirrors world of high finance. Instead, why not invest in tangible things like manufacturing?" Once more, I am wary of Western preconditions of wanting to disavow SWFs of controlling stakes in Western firms, be they in finance or manufacturing. When you're desperate for funding to stave off worse things, foreign ownership looks like a helluva better proposition than, say, receivership. Anyway, to the article:

Sovereign wealth funds will become major sources of funding for Western companies as financial markets reel, said European Union Trade Commissioner Peter Mandelson and Airbus SAS Chief Executive Officer Tom Enders. Companies will ``lack a lot of money for years to come'' because of the financial crisis in the U.S. and Europe and will push their governments to be more open to foreign investments, Enders said at a World Economic Forum meeting in Tianjin, China. Mandelson called for regulation to encourage the investments [ho-hum].

Europe's top trade official has used a four-day visit to China to add his voice to calls for the Asian nation and other fast-growing emerging economies to ``take up the slack'' in the global economy, as the U.S. government works out a $700 billion plan to bail out its banks and keep credit markets functioning, ``The sovereign wealth funds in the present context might better be termed savior wealth funds,'' Mandelson said today. ``We need to find sensible ways and a proper basis on which sovereign wealth is able to deploy and use its resources to inject much-needed liquidity into the financial system.''

Countries including China, Russia and Kuwait have set up funds to seek better returns on cash reserves by investing in equities and other assets abroad. The rising pool of money has sparked concern among some lawmakers in Europe and the U.S. that the funds may be used to gain control over strategic industries.

``You see already major companies, European, American, touring those countries that have the funds because they foresee the need for funding, and these companies will also try to persuade governments'' to be more open, Enders said. ``One of the big changes we're going to see is the acceptance of sovereign wealth funds.''

Sovereign wealth funds, which own about $3 trillion in assets, may almost triple their investments in the next five years as oil and gas prices surge, State Street Corp. estimated in July. Estimates of sovereign funds' asset growth are ``conservatively'' placed at 17 percent a year, said State Street, the world's biggest money manager for institutions...

Both Mandelson and Enders said clear regulation is necessary to smooth the way for greater acceptance of sovereign funds. Mandelson in June suggested the funds could ease political resistance to their investments by signing a code of conduct that they seek only profit, not control of industries.

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