Sovereign wealth funds: Help when help is needed
With capital markets fragile and expensive, sovereign wealth funds are playing an important role in recapitalizing banks.
Last month, Euromoney wrote in its cover story that, "with stock markets in Europe and the US tumbling, credit markets in dislocation and M&A activity drying up, the influence of sovereign wealth funds will become even more apparent".
Just how apparent was illustrated within days when sovereign funds in Asia and the Middle East helped to bail out Citi, Morgan Stanley and UBS through cash injections totalling a combined $22.5 billion. Just before Christmas, Merrill Lynch confirmed a $5 billion investment from Singapore’s Temasek.
These transactions will cause concern among those western politicians and other critics of sovereign wealth funds who are increasingly worried about foreign governments gaining powerful stakes in such an important national institution as a bank. Even some of the banks’ shareholders are raising their eyebrows. One UBS institutional investor has called on other shareholders to reject the SFr13 billion ($11.3 billion) offer from Singapore’s GIC and an unnamed Middle East investor, thought to include the Crown Prince of Saudi Arabia.
But critics need to appreciate the ability of these funds to take on risk when there are few other avenues of capital readily available.