Sovereign-wealth funds / Economist

besides the indirect effect that they are fueling the bond market leading to lower yields and extreme risk taking the state owned investment vehicles are more and more directly impacting the equity market....great news for global stock markets and definitly better than buying us treasuries.......as i´ve written before i think that the us market will benefit the least from this move (action in congress, diversification out of the $, unocal and ports deal etc......)

neben dem indirekten effekt das sie den bondmarkt überfluten und damit die renditen drücken und damit u.a. die z.zt. waghalsigen übernahmen mitermöglichen greifen die staatlichen investmentfonds immer mehr dirkt in das geschehen an den aktienmärkten ein. fantasticshe news für die weltweiten aktienmärkte...und immer noch besser als us staatsanleihen zu kaufen....und wie ich bereits vorher geschrieben habe glaube ich das die us am wenigsten von dieser entwicklung profitieren werden (man beachte nur das geschehen im us congress, diversifikation aus dem $, die geplatzten unocal und hafendeal usw.....)


China's investment in Blackstone shows how government investors are flourishing at the heart of the financial system

WITH $1.2 trillion in foreign-exchange reserves and the pool growing by more than $1 billion every day, China casts a giant's shadow over the global financial markets, even if it has mostly used the money to pile up American Treasury bonds. The announcement on May 21st that it would invest $3 billion of its reserves in Blackstone, a New York-based private-equity firm soon to issue shares, shows that it is prepared to barge into murky private markets as well as liquid public ones. It is not the only inscrutable country to be cosying up to the inscrutable private-equity industry. Around the world, a secretive society is emerging of governments flush with foreign assets, some of them petrodollars, that are increasingly calling the shots in international finance. The Blackstone deal is likely to stir others to invest their money even farther away from prying eyes than they do already.

Like China, whose proposed Blackstone stake is part of $300 billion that the government plans to set aside this year for investment purposes, dozens of countries have set up what are now commonly referred to as sovereign-wealth funds. They manage money drawn from reserves, natural-resource payments and the like. China is chiefly concerned to diversify its foreign reserves, but other sovereign-wealth funds own national, as well as international, assets.

The top 12 each have anything from $20 billion to hundreds of billions of dollars to invest (see table). Recently, Japan, Russia and India have reportedly been considering setting up funds along similar lines. Some estimates put the size of the funds at $2.5 trillion by the end of this year (in contrast, hedge funds are thought to have a mere $1.6 trillion), with another $450 billion in transfers from reserves being added annually. Including capital appreciation, the amount could swell to $12 trillion by 2015.




To the extent governments have traditionally held investment assets, it was to protect domestic currencies and banks from crisis. Since the funds were for emergencies, they were of a type that could be liquidated easily—initially the holdings were in precious metals, lately they have been in dollars. The idea of building up an endowment to replace shrinking natural resources did not exist.

That process may have started inadvertently in 1956 when the British administration of the Gilbert Islands in Micronesia put a levy on the export of phosphates—bird manure—used in fertiliser. The manure has long since been depleted. However, a once-tiny set-aside of money has become the Kiribati Revenue Equalisation Reserve Fund, a $520m investment portfolio that has grown to about nine times the tiny atoll's GDP.

A similar approach is now common among oil-producing countries, which, it is estimated, account for two-thirds of the assets in these sovereign-wealth funds, and are keen to diversify their national revenues, aware that their wealth is being pumped away. They have typically invested along similar lines to central banks, holding bonds, dollars and bank deposits. Temasek, (details http://www.temasekholdings.com.sg/ a Singaporean entity created in 1974 to pool state-owned investments, started to change the mindset. It subsequently evolved into an even more complex investment vehicle. The heady combination of state-control, success and secrecy, entranced other governments.


Recently, central bankers have also begun wondering whether they have a fiduciary duty to make higher returns from the public wealth under their supervision, which could mean placing at least some part of foreign-exchange reserves in high-yielding, if less liquid, investments. In Asia this question has become increasingly pertinent in the past two years, as reserves have mushroomed.

The result has been a torrent of money into a finite pool of assets. There is no precedent for such fortunes suddenly to find their way into global financial markets, and they help explain the waterfall of liquidity that has driven up the value of risky (and less risky) assets of all descriptions around the world. The world's entire supply of shares is $55 trillion, and bonds account for a similar amount. Sovereign-wealth funds could soon become the most important buyers of such assets, and many others besides. If so, the world will witness the intriguing spectacle of its largest private companies being owned by governments whose belief in capitalism is often partial.

The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps.

Northern light
Of the biggest sovereign funds, only Norway's provides anything close to transparency. Each year it discloses its investment portfolios and returns. ... here are the details http://tinyurl.com/3yexnp

Andrew Rozanov, of State Street Bank, argues that the lack of well-defined obligations and the ability to retain funds indefinitely while not having to reveal results is an investment advantage. The funds can harvest the benefits of volatility and illiquidity unavailable to the risk averse. It would not be surprising if some did particularly well. On the other hand, the same factors that could lead to higher returns could also lead to corruption and untoward political intervention.

But the kind of assets the funds invest in—big ones—can generate frictions even when run properly. Temasek has been embroiled in controversy in Thailand after it bought Shin Corp, one of the country's telecoms companies, from Thaksin Shinawatra, the country's deposed prime minister. China is no stranger to such tensions. In an event that still rankles, CNOOC, the state-controlled oil company, was blocked in America, supposedly on national-security grounds from acquiring Unocal, an oil company.

It is quite possible that by purchasing a non-voting interest in Blackstone, China will be able to bypass the restrictions that might prevent it doing Unocal-style deals in Europe and America......

China still has vast holdings of state assets, and its embryonic stockmarket is bubbling over—if anything it needs more publicly traded companies. Like other countries with sovereign-wealth funds, it would appear to need more expertise in selling companies that it owns, rather than learning how to buy the ones it does not

>just the news from yesterday involving state investment vehicles....
>hier ein paar beispielmeldungen vom montag in sachen staatliche investments...

Singapore Air, Temasek May Buy 24% of China Eastern http://tinyurl.com/2fkdgx
OMX Shares Advance on Report Dubai May Outbid Nasdaq http://tinyurl.com/2z8v43
Norsk Hydro preparing $30 bln bid for Alcan http://tinyurl.com/ytvxlg Pogo sells Northrock to Abu Dhabi Energy http://tinyurl.com/22d926

and this were news from a bank holiday....
und das waren die meldungen vom pfingsmontag....

china is shifting $reserves to equities

it was only a matter of time. and for china this is for sure better than buying us bonds. but i think the effects for the us stockmarket will be benefitting the least or maybe a net negative ( see examples in the post). first of all lots of firepower that help to keep the rates down will shift to other asset classes.

with steady surplusses coming to china i think that they don´t have to sell bonds to fund their investment vehicle. than the effect for bonds will be more severe. but this scenario is unlikely.

for the rest of the equity market this should be fantastic news on top of the petro$ another major suppert to pimp up valuations.

nur ne frage der zeit bis china diesen schritt vollzieht. so ziemlich jedes investment ausserhalb us anleihen erscheint mir besser. unterm strich glaube ich aber das dieser schritt für us aktien unterm strich negativ sein wird bzw das us aktien am wenigsten profitieren werden.. (siehe beispiele im post). zuerst werden diese summen fehlen um zukünftig us anleihen zu erwerben.

dank der ständigen zuflüsse werden sie sicher keine $anlagen verkaufen müssen. sollte das doch der fall sein (extrem unwahrscheinlich) dürften die auswirkungen spürbar sein.

für die restlichen aktienmärkte sind das fantastische news. neben den petro$ kommt jetzt noch china hinzu um die bewertungen höher als gewöhnlich zu halten.

March 9 (Bloomberg) -- China's government plans to set up an agency to help manage its $1.07 trillion of currency reserves and indicated the fund will invest in companies in a similar manner to Singapore's Temasek Holdings Pte. ( here is very good presentation of temaesk / hier ne gute übersicht http://www.temasekholdings.com.sg/ /

The agency will ``maximize the profits'' of the reserves, Finance Minister Jin Renqing said today. Lou Jiwei, promoted to China's cabinet on March 6, will manage at least $200 billion as head of the agency, said Yu Yongding, an adviser to the People's Bank of China.

China, the world's second-largest holder of U.S Treasuries, now invests most of its currency reserves in dollar assets and is losing from exchange-rate movements as the yuan gains. The agency's creation may prompt a flood of Chinese investments into overseas technology companies, mines and oil fields to support an economy that grew 10.7 percent last year.

anybody remember the uproar when dubai wanted to recycle some of their petro$ into direct us assets (ports)and not just treasuries......in the end dubai had to split the us and the rest of the operations. the deal was no problem for uk ( aslo under terror threat) and the rest of the world

ich hoffe es können sich noch einige an den aufschrei erinnern als dubai versucht hat öl$ zu in den usa mittels firmenübernahmen (hafenanlagen) zu investieren. letztendlich mußte dubai auf die us häfen verzichten. im rest der welt inklusive uk ging die sache glatt durch

and how big is the chance that the chinese will buy a us oil company? when you look at the "unocal saga" close to zero.....

das die chinesen jemals ne us ölfirma kaufen halte ich für ausgeschlossen. man muß nich nur das geschacher um unocal ansehen. (mit sondersitzungen des kongresses.nationale sicherheit etc.)

``China's new investment company should focus more on securing strategic resources and technology, and not on the financial markets,'' said Zhong Wei, director of Finance Research Center of Beijing Normal University.

State-owned Temasek managed S$129 billion ($84 billion) of assets for Singapore's government as of March last year, holding stakes in companies ranging from Chinese banks and Indian textile makers to domestic airlines and telecommunications operators.

Enhancing Returns
``We will model it on international best practices, including that by Singapore's Temasek,'' Jin said today at a press conference in Beijing. ``We will try to maximize the profits and returns on our management of foreign exchange, guided by the principles of safety and risk management.''

Temasek's profit surged 71 percent to a record S$12.8 billion in the year ended March 2006, while it returned 24 percent to shareholders, matching the MSCI AC Asia Pacific excluding Japan Index and outperforming Singapore's key Straits Times Index, according to Bloomberg data. The yield on the benchmark 10-year U.S. Treasury bond is 4.51 percent. ( and it is in $...zudem noch in $..)..

The nation's foreign-exchange reserves jumped 26 percent, or by more than $200 billion, last year to become the world's largest, driven partly by a record trade surplus.

Turf War?
Jin didn't say how much the agency will manage or elaborate on its investment strategy. He declined to confirm whether his former deputy will head the agency. China's 2006 holdings of U.S. government bonds rose 12.5 percent to $349.6 billion.

Effective Management
China is trying to find new methods to invest the reserves without letting the yuan appreciate too quickly.

The yuan fell 0.06 percent to 7.7442 to the U.S. dollar at 4:07 p.m., after yesterday reaching the strongest since a peg to the dollar was scrapped in July 2005. The currency has risen about 7 percent since the end of the fixed link. (really shocking..../ wirklich dramatisch...)

The government ``will actively explore and develop channels and means for appropriately using state foreign exchange reserves,'' Premier Wen Jiabao said on Monday .....

so lets hope that they will not hire goldman to manage their account....... :-)

bleibt zu hoffen das sie nicht goldman mit der betreung beauftragen.... :-)