What are Sovereign Wealth Funds (SWF) ?
For several months we have been hearing information about Sovereign Wealth Funds (SWF), without knowing exactly what they mean. In this issue we make a brief introduction and explain why they are so especially useful in times like this.
SWFs are state funds that grow as a country is successful in selling a single product, but today most often hears from funds which were created in oil producing countries and taking advantage of rising diesel prices, have increased their funds up to very high levels.
For several years these funds have been mobilized in search of good investment opportunities, security and overall profitability. In fact, several of these funds have invested in banks including Citigroup, Morgan Stanley and many others, and even multinational infrastructure projects.
However, the difficulties faced by international markets, investors have generally hampered profitability, while Sovereign Wealth Funds have not stopped investing internationally. The leadership has reached can be checked by looking at the sales of multinational companies around the world.
In seeking to recoup their income is not surprising they choose sectors revived again in the future, as the consumer sector, and so on. Economists say that the phenomenon of SWFs is one of the clearest ways in which we can observe the transfer of wealth from a consumer country to a producing country, primarily in liquidity by buying their companies and second in investments and properties.
It is the manner in which a country becomes a “property” of another that because it has important reserves of “black gold”, you can invest and take ownership of large markets.
The danger of Sovereign Wealth Funds
As we touched on a previous post, the Sovereign Wealth Funds are investment funds that thanks to its economic power are injecting liquidity into international markets, and we are moving so quickly to reactivate the economy, but everything has cons and in this post will expose them.
To allow the Sovereign Wealth Funds to take possession of major national firms of a country, or those of small banks are facing bankruptcy are concerns of several European governments who see a danger in this capital.
And behind every Sovereign Wealth Funds are a country, an ideology and a strong desire for possession that can not be overlooked. Public advisories that have made the governments of France and Germany could undermine the success with which these funds are investing.
To prevent future problems, the IMF and countries with large funds have agreed a code of conduct, which is intended to regularize their investments in future and avoid monopolizing the economy of a foreign country.
There are already 26 countries possessing significant Sovereign Wealth Funds which have accepted the deal, among them are China, Singapore, UAE, Qatar, Kuwait and Bahrain. A step forward which undoubtedly reduces the investment risks that continue political arguments rather than financial.
One of the statements was based precisely on the above, agreed that the main element that will guide your investment is strictly financial and will never be guided by political interests. We’ll see, though we hope that the IMF has also warned otherwise.
To achieve a higher level of transparency rules have been agreed and globally accepted accounting rules. However, these rules and regulations preclude the possibility of auditing the Sovereign Wealth Funds, which are all based on a set of rules and regulations that will end up looking more like advice on how to invest.