Back to June 2019

Neutrals or casualties in trade wars?

  • Asia
  • China
  • Global
  • Hong Kong
  • USA

The Sovereign Wealth Fund Institute’s quarterly global asset owner survey earlier this year found that respondents rank trade wars and protectionism as the largest tail risk. But it seems the SWFs, as major concentrations of sovereign investment strength, are not particularly concerned that their own activities could be curtailed by protectionism, and are still focused on the broader macroeconomy. The survey finds no major shifting of investment stance, citing many funds as being in a holding pattern, waiting for opportunities to deploy more cash.

There are still warning bells being rung over SWF activity, though this is hardly new. Alarmist reports of SWFs as ‘the new foreign menace” go back over ten years to 2008. Yet in 2018, you have Foreign Policy magazine running articles warning that “Nations Are Wielding Their Sovereign Wealth Funds as Tools of Power”. In practice, SWFs have hardly borne out such fears. Aside from their roles as relatively benign holders of listed assets, SWFs tend to be scrupulous adherents of national regulations when making big-ticket investments.

Given the typical assets under management and ideal investment size of an SWF, a takeover or buyout by a sovereign fund will usually involve approval by the competition authority or other relevant regulator in the target country. SWFs will therefore seek to give all possible reassurances to governments in order to be able to continue investing and growing their large capital pools.

The head of China Investment Corporation, China’s SWF, was still making optimistic public statements about investments in US companies in mid-2018, stating that fears over these were “unnecessary”.

SWFs do inevitably raise questions about the sovereign entities behind them. In the case of Saudi Arabia’s Public Investment Fund, that’s especially pertinent because it’s uncertain whether the sovereign entity is Saudi Arabia as a nation, or the House of Saud. Saudi Arabia, after all, still has the dubious distinction of being listed in Wikipedia as an absolute monarchy, and its much-criticised record on human rights is surely linked to that status.

Yet the Saudi Arabian fund appears to have few anxieties that it might lose access to US markets. But if governments object to investments by SWFs on grounds of political incompatibility and respect for international norms, then what can they say about the Public Investment Fund?