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» Articles - Wealth Management of nations: tracking sovereign wealth funds
Did you know that sovereign wealth funds are the biggest investors in the world? Most of their assets end up in the USA but to date tracking sovereign wealth management investments has been too hard.
The largest sovereign wealth funds, according to a variety of sources including the International Monetary Fund, are Abu Dhabi, Russia, China, Norway and Singapore. Where and in what these countries invest has been the source of much attention, scrutiny and investigation lately -- mostly because of fear of their power. Financial gain is one thing but when political power can be exerted via a nation's ownership of financial assets, geopolitical concerns arise. That is exactly is happening.
Recently (in March 2008), Singapore and Abu Dhabi agreed to improved reporting standards set by the U.S. Treasury Department. Secretary Henry Paulson shook hands on the deal with officials from those two nations. President Bush commented: "We can protect our people against investments that jeopardize our national security, but it makes no sense to deny capital, including sovereign wealth funds, from access to the U.S. markets."
The U.S. Congress is concerned about the national security and geopolitical considerations of sovereign wealth fund investments. But those are macro considerations.
On an individual level it's worth taking a look under the hood of these funds. Investors do track the biggest mutual funds and hedge funds in the world only to invest in what those entities invest in themselves. Teams of people track Warren Buffett's investments and try to invest as he does.
There is an opportunity to mimic the acumen of sovereign wealth management of funds. In theory at least, they have the resources to complete some robust research.
Until now about the only way to track the investment actions of these funds was to leaf through the media reports on them. However, the USA is pressing the International Monetary Fund ( IMF ) and the Organization for Economic Cooperation and Development ( OECD ) to get sovereign wealth funds to open up their books and better disclose their decision-making structures. Such things as asset-allocation models and benchmark measures could go a long way toward understanding where and how these funds invest -- more importantly, perhaps even how they are poised to invest or disinvest.
Facilitating parallel investing is not the intent of international financial bodies. But investors can use these new disclosures to their advantage. Indeed, there are advantages!
In 1990, sovereign funds held approximately $500 billion; the current total is an estimated $2 trillion to $3 trillion and, based on the likely trajectory of current accounts, could reach $10 trillion by 2012, according to the IMF.
Given how markets receive assets -- increased investment supply causes prices to rise -- figuring where the trillions will fall could translate well into a new international investment strategy. This is similar to tracking hedge funds when they first came on the scene in a big way: there is enormous profit potential in the new kid on the block.
Of course the IMF cautions: "In sum, sovereign wealth funds are major state-owned players of the 21st century. Hedge funds, while becoming more prominent in this century, are in some sense a throwback to the end of the 19th century, when large pools of private capital moved around the world with unregulated ease -- and generally contributed to a long global boom, rapid productivity growth around the world, and a fair number of crises. What happens when the 21st-century state meets the 19th-century private sector? The outcome remains to be seen." Take advantage of this opportunity as part of your wealth management and building of your investment assets, get involved in tracking the sovereign wealth funds and ask your adviser to do the same.
For more information contact Vas Banschikov .
Vas Banschikov
www.SuperInvestor.com.au
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