July 2008 | By Juan Pedro Gomez, Professor at IE Business School
They are about liquidity and a desire to invest millions in leading international banks in order to leverage the subprime crisis. They are sovereign wealth funds, the new focus of debate in the western world.
In February, the Qatary Investment Authority (QIA), the Qatar governmentâ??s investment fund, purchased between 1 and 2% of the Swiss bank Credit Suisse. More recently, rumours of investments by the same fund in the Royal Bank of Scotland increased the British bankÂ´s share price by 5% on the London Stock Exchange on 25 February.
In January this year, Merrill Lynch and Citigroup received a total of $21 thousand million from sovereign wealth funds (SWF) from the Middle East and Asia. Overall, according to Morgan Stanley, since the liquidity crisis began in August last year, more than $69 thousand million have been invested by SWF in financial groups in developed countries. There is not the slightest doubt that the money has been welcome, not only by the banks (who continue to lower the market value of mortgage portfolios and their derivatives), but also by the market as a whole, anxious for liquidity and stability. So far, SWFs are heroes.
At the same time, leaders such as Nicolas Sarkozy and Angela Merkel have promised to protect their investors and managers from the “aggressive practices” of these funds.
The president of the European Commission, Durao Barroso, commented that “we cannot allow non-European funds to be used to carry out geopolitical strategies”. The European Commission has recently approved a proposal for the SWF to voluntarily subscribe to corporate government and transparency policies that are common in Western economies. And now, it would seem that for political managers and legislators they are villains.
Who is behind these funds? Are they a recent phenomenon? Should we be concerned about their movements? Are they heroes or villains?