SWFs are back… not that they ever went away
Sovereign wealth funds hold a cool $3 trillion in assets. Some say they’re set to become more vocal and activist after being ‘missing in action’ during the tough times. But they never stopped investing.
February 5, 2010 1:58 by Ben Flanagan
In a recent interview with Germany’s business daily Handelsblatt, ADIA’s managing director Sheikh Ahmed bin Zayed Al Nahyan reiterated this policy. (The fact that the interview was given at all prompted some commentators to declare that ADIA is now being more transparent.)
“As a matter of policy, ADIA does not exercise its voting rights except on rare occasions to protect our financial interests or against motions that may be detrimental to shareholders as a whole. This approach reduces the need for us to buy large stakes in companies or to take board seats,” Sheikh Ahmed told the newspaper.
“While there are some investments where we may occasionally take larger positions than others – such as in real estate – the rumors that circulate occasionally about ADIA planning takeover bids or looking to buy controlling stakes in one company or another are invariably a case of mistaken identity.”
Sheikh Ahmed added that ADIA plans to refine its investment approach to cope with downturn. He said the fund has switched its weightings across asset classes to reduce the impact of economic downturns over the past 18 months. ADIA has its largest allocation in the U.S., with 35 to 50 percent, followed by Europe at up to 35 percent and Asia at up to 20 percent.
SEI’s Jahangir Aka says that the SWFs apply the rules of asset allocation to the letter. “They abide by asset allocation rules almost to the tee,” he says. “The biggest issue that impact [SWFs] is around capacity. If you had a trillion dollars, and you wanted to deploy 2 percent in the Middle East, that’s $20 billion – which is a lot. So the question is, when you go in so big, do you end up owning so much of a stock that you have a liquidity issue?”
But while the rules of investment may not change in the wake of the recession, other rules – such as voting in shareholder meetings – may be subject to upheaval.
But if, as Gary Smith predicts, SWFs start to become more involved in their obligations as shareholders, the row over ‘politicization’ may resurface.
As Angel Cabrera, president of Thunderbird School of Global Management in Arizona, tells Reuters: “You need to put firewalls to keep from political interference. Activism scares recipient countries. [But] activism plus transparency adds value.”