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Monday, 10 November 2008
Once bitten, twice shy for SWFs
Cash-rish sovereign wealth funds (SWFs) from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil, analysts said.
Cash-rish sovereign wealth funds (SWFs) from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil, analysts said.
Despite fresh opportunities, prudence now prevails as countries that own the funds sit on massive paper losses from investments made just before problems in the US housing market erupted into a full-blown global crisis.
Their multibillion-dollar forays into Western financial giants such as Citigroup and Merrill Lynch appeared to be good bargains but the banking shakeout has since sharply reduced the value of their holdings.
‘I think they’ve been burnt...they are not sure this is the right time and they are more cautious,’ said Ms Zanny Minton-Beddoes, a Washington-based editor with The Economist.
Ms Minton-Beddoes, a former economist with the International Monetary Fund (IMF), told AFP: ‘They put a lot of capital into financial institutions earlier on and they lost a lot of money.’
Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from SWFs created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialisation in Asia.
The funds have come under increasing scrutiny after making high-profile investments in distressed banks and companies.
They were also criticised as too opaque in their operations and, in some cases, stakes in strategic sectors such as telecommunications were seen as potential threats to national security.
The IMF has estimated that SWFs collectively hold total assets of between US$1.9 trillion (S$2.8 trillion) and US$2.8 trillion, and could be worth US$12 trillion by 2012, while the UN Conference on Trade and Development puts their current holdings at about US$5 trillion.
Mr Christopher Balding, a researcher with the University of California, said SWFs are by nature risk-averse and the ongoing financial turmoil would further accentuate that position. ‘The current turmoil will, in my estimation, only reinforce the inherent conservative investment outlook,’ he added.
‘SWFs are not interested in making more large investments because of how their previous investments have turned out.’
Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corporation (GIC), emerging as sought-after sources of capital by ailing Western financial firms.
In response to AFP queries, GIC and Temasek both said they would continue to explore all investment opportunities but declined to give further details.
Analysts said SWFs from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the cheque book is taken out.
‘Western financials need the capital and they (sovereign wealth funds) have the capital... I just think they will be carefully considered,’ said Ms Minton-Beddoes.
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Once bitten, twice shy for SWFs
AFP
10 November 2008
Cash-rish sovereign wealth funds (SWFs) from Asia and the Middle East may be turning cautious after getting burnt by investments in Western firms hit by the current financial turmoil, analysts said.
Despite fresh opportunities, prudence now prevails as countries that own the funds sit on massive paper losses from investments made just before problems in the US housing market erupted into a full-blown global crisis.
Their multibillion-dollar forays into Western financial giants such as Citigroup and Merrill Lynch appeared to be good bargains but the banking shakeout has since sharply reduced the value of their holdings.
‘I think they’ve been burnt...they are not sure this is the right time and they are more cautious,’ said Ms Zanny Minton-Beddoes, a Washington-based editor with The Economist.
Ms Minton-Beddoes, a former economist with the International Monetary Fund (IMF), told AFP: ‘They put a lot of capital into financial institutions earlier on and they lost a lot of money.’
Since last year, financial institutions hit by the unfolding slump in the US housing market have sought and received billions of dollars in fresh capital from SWFs created to invest national savings and surpluses fed by crude-oil windfalls in the Gulf and rapid industrialisation in Asia.
The funds have come under increasing scrutiny after making high-profile investments in distressed banks and companies.
They were also criticised as too opaque in their operations and, in some cases, stakes in strategic sectors such as telecommunications were seen as potential threats to national security.
The IMF has estimated that SWFs collectively hold total assets of between US$1.9 trillion (S$2.8 trillion) and US$2.8 trillion, and could be worth US$12 trillion by 2012, while the UN Conference on Trade and Development puts their current holdings at about US$5 trillion.
Mr Christopher Balding, a researcher with the University of California, said SWFs are by nature risk-averse and the ongoing financial turmoil would further accentuate that position. ‘The current turmoil will, in my estimation, only reinforce the inherent conservative investment outlook,’ he added.
‘SWFs are not interested in making more large investments because of how their previous investments have turned out.’
Singapore was among the most prominent investors with its two main funds, Temasek Holdings and the Government of Singapore Investment Corporation (GIC), emerging as sought-after sources of capital by ailing Western financial firms.
In response to AFP queries, GIC and Temasek both said they would continue to explore all investment opportunities but declined to give further details.
Analysts said SWFs from Asia and the Middle East would continue to be major financiers, but any potential partnerships would be carefully weighed before the cheque book is taken out.
‘Western financials need the capital and they (sovereign wealth funds) have the capital... I just think they will be carefully considered,’ said Ms Minton-Beddoes.
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