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This episode aired on BloombergTV on Jan 29, 2013

Sovereign Wealth Fund

Sovereign Wealth Funds have evolved to become major forces in global finance. One of the largest in the world is the Government Pension Fund of Norway, with over $700 billion in assets. SWFs, due to their size, invest slightly differently than average investors, or even large institutions, but still put much of their money in alternatives such as private equity and hedge funds, and also invest directly in indrastructure and natural resource deals.

Q. So Sovereign Wealth Funds have become a huge force in global finance over the years… I guess the biggest ones would be out of China and the Middle East?

A. Good guess, but actually the very biggest one in the world is a bit surprising: Norway. Partly that’s because there’s more than one in China, but the Norway fund has something like XYZ under management. And, to show you what a force these really are, total SWF assets exceed $5 trillion.

Q. So what kinds of things do they invest in?

A. Lots of alternatives, both through PE and hedge funds, and also in direct deals– maybe $100 billion a year of new investment into things like infrastructure and natural resources. Sometimes, the SWFs are actively pursuing strategic interests of the government… for example, ominously for us, China has one fund that only does direct investment in resource-rich Africa. That’s one way they get control of things like rare earth minerals, really critical for advanced batteries, renewable energy and even weapons.

Q. And directly into basic US corporate transactions as well, right?

A. Definitely. There’s a lot of speculation that the proposed Dell going private transaction– which is huge, of course– may well involve SWF money.

Q. So, aside from the obvious suspects, which countries run significant SWFs now?

A. It’s an incredible array: Ghana, Vietnam, Peru, Angola… and even a few US states, like Alaska, which tries to take some of their oil income and set it aside for future needs.

Q. So really almost everybody, with, I guess, one notable exception.

A. Right: the US. As we discussed yesterday, we’re “funding” our future obligations like SS with intergovernmental US debt…when you see what other countries do, that can make you a bit nervous, and even jealous.