Tuesday, December 04, 2007

Yabba Dhabi Doo

From the press this week, news that investment funds in the United Arab Emirates have taken MAJOR equity holdings in two of the largest global companies: Citigroup ($7.5 billion / 5%) and Sony ("substantial). This atop several other recent SWF investments in AMD (8%), Apollo Management (9%), and Airbus.

Worldwide, something north of $2.5 trillion sits in sovereign wealth funds. Abu Dhabi's fund is purported to be the largest, at $625 billion, but by no means are the Oily Arabs the only ones throwing their government cash around private markets. The second largest fund is purported to be Norway's at $330 billion. And in asia, Singapore has well over $200 billion in various funds. Even communist China owns stocks -- Blackstone Group is now 10% held by the Chinese government. France and Germany don't have specific funds ... that would create perhaps too much trancparency for them. Make no mistake - they're deeply invested in companies in their own countries. Airbus, for example, would not even exist did it not receive a steady "reverse dividend" from it's shareholders, the European governments.

While dollar markets are deep and wide enough to absorb these purchases without lurching overall, outsized SWF investments in other national markets have caused significant trauma ... and they've only begun to dip their toes in the water. Just wait 'till one of 'em tries to get a seat on the board of an American company or otherwise flex their ownership muscle.

Ya can't blame 'em really. All these emerging market countries are flush with cash (mostly in Dollars) from exports, primarily those of commodities, and those primarily of oil. Holding all that money in treasuries which (of late) don't even keep up with the rate of Dollar depreciation, just doesn't make sense. Think about it in domestic terms -- if Congress found out they could add a new massive revenue stream from investments, how long would they be able to keep from doing that? The money'd be spent before the investments had even been made. They might even lower taxes if faced with enough pressure.

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