Sovereign Wealth Funds: Love and Loathing in the Financial Markets


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Case Details:

Case Code : BENV018
Case Length : 15 Pages
Period : 2001-2008
Pub Date : 2008
Teaching Note :Not Available
Organization : Carrefour/ Tesco/ Wal-Mart
Industry : Retail
Countries : China

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The claim that sovereign wealth funds are causing threats to state security and economic security is groundless. We don't need outsiders to come tell us how we should act."1

- Jesse Wang, Executive Vice President and Chief Risk Officer, China Investment Corp.,2 in March 2008.

"We cannot allow non-European funds to be run in an opaque manner or used as an implement of geopolitical strategy."3

- Jose Manuel Barroso, President, European Commission,4 in February 2008.

"We have already enough protectionism on trade and investments. We are now adding protectionism [fears] on SWFs without any evidence that they've done anything wrong so far. We should incorporate them."5

- Angel Gurria, Secretary-General, Organisation for Economic Cooperation and Development (OECD),6 in January 2008.

Introduction

In early June 2008, Kuwait Investment Authority (KIA), a Kuwaiti Sovereign Wealth Fund (SWF), announced that it might invest further in Citigroup Inc. (Citigroup)7 and Merrill Lynch & Company Inc. (Merrill Lynch).8 Earlier in January 2008, the fund had invested in these two financial institutions, when they sought to increase their capital and strengthen their balance sheets following massive losses due to the sub prime crisis9.

Later in June 2008, when the question was raised whether KIA was planning to raise its stakes in these companies, Bader Al-Sa'ad, managing director of the fund, said, "In Citi or Merrill, if there is good opportunity, we will look into it.

Sovereign Wealth Funds: Love and Loathing in the Financial Markets - Next Page>>

1] Sanjiv Shankaran, "Centre Puts SWFs under the Scanner,"www.livemint.com, March 10, 2008.
2] The China Investment Corp is a Sovereign Wealth Fund. It was founded in September 29, 2007. It has US$ 200 billion of assets under management.
3] "US in Talks with Sovereign Wealth Funds,"www.arabianbusiness.com, February 28, 2008.
4] The European Commission (EC) is the executive branch of the European Union and is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union. (Source: http://en.wikipedia.org)
5] Lynne Roberts, "Wealth Fund Fears Unjustified, Say Experts,"www.arabianbusiness.com, January 24, 2008.
6] The Organization for Economic Co-operation and Development (OECD) is an international organization of those developed countries that accept the principles of representative democracy and a free market economy. (Source: http://www.nationmaster.com)
7] Citigroup Inc. is a major American financial services company based in New York City.
8] Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies. (Source: http://ml.com)
9] The subprime crisis caused a serious credit crunch in the global banking system, and sprang from increasing rates of default on home loans, particularly those given to borrowers with low credit scores.

  

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