They're back: Sovereign funds want to be heard

Fri Jan 29, 2010 11:41am EST
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By Natsuko Waki

DAVOS, Switzerland (Reuters) - Last year, with most of the world mired in the "Great Recession," those outsized sovereign wealth funds amassed by governments from the likes of Abu Dhabi, Singapore and China went missing in action.

Now they're back, and ready to reassert themselves.

With some large funds expected to turn more activist, the demands they make as shareholders of global corporations and banks have the potential to drown out many other voices. On the one hand this will help improve returns for all shareholders, but also, potentially, show them exercising unwanted and perhaps politically motivated influence.

Investing windfall surpluses largely generated by oil and gas production, sovereign wealth funds (SWFs) are known to be opaque, secretive or low-key operators that give corporates cash quietly but never actively intervene in their management.

With around $1.5 trillion in equity investments, such funds -- the Abu Dhabi Investment Authority is the largest with nearly $600 billion in assets -- already hold about 4 percent of the world's listed companies, industry estimates show.

They are forecast by Deutsche Bank to see their assets more than double to $7 trillion in less than 10 years. As that happens their stakes in companies will naturally get bigger, which could give them more board seats and a bigger say.

"As they become even bigger and more successful, they feel more comfortable in investing in larger stakes. As they have a bigger share in the pie, we expect them to become more active," said Efraim Chalamish, an SWF expert and global fellow at New York University Law School.

"If I give you the stick will you use it? Usually the answer is yes."   Continued...