Paul Rose, an assistant professor of law at Moritz College of Law, Ohio State University, has circulated a draft of a paper, it seems, will be published later this year by the North Carolina Law Review, simply entitled “Sovereigns as Shareholders.”
As that title implies, the article deals with "sovereign wealth funds" (SWFs) and their investments, especially their equity investments, and discusses a variety of legal puzzles that may arise.
One scenario briefly addressed in that article is that of a peculiar sort of insider trading. An SWF, as the arm of sovereign nation Z, could learn that another arm of said sovereign is about to bring an enforcement action against, or impose a costly regulation to the disadvantage of, company X. The SWF may then sell (or short) its company X stock, and/or increase its investment in the equity of one of X’s competitors.
My own take, frankly, is that this is the sort of speculation (Mr. Rose doesn’t adduce any example of such an event in the fifty-plus years during which SWFs have operated) that helps stoke irrationality on the subject.
But, hey, let's speculate. Assume away my usual caveats about why 'insider trading' itself is considered problematic. Would it be possible to keep such maneuvers a secret? It seems to me that what Z and its fund were doing in such a case would be very visible, and would work against the fund’s long-term return as diversified investors, while also undermining Z as a desirable business climate.
These are probably two good reasons why it hasn't happened.
Go, Buckeyes! Go, Tarheels!
Of course, ideally I'd rather not have sovereigns investing in US equity. I'd rather all the equity of private-sector entities be truly private in character. For that matter, if ideally I'd rather not have sovereigns. Period.
But the world does have sovereigns, and one of them, the US, owes a heck of a lot of money to many of the others. Those others are naturally going to re-invest that money somehow, and it is in general a good thing that they invest much of it back in the US, in forms which subordinate themselves to market principles. This isn't a situation that should cause hysteria.
Showing posts with label sovereignty. Show all posts
Showing posts with label sovereignty. Show all posts
Sunday, June 1, 2008
Wednesday, May 7, 2008
SWFs versus activism
I don't believe I've used the initials SWF yet in the brief history of this blog.
So here's a definition. Outside of the personal-ads section of a newspaper, where they of course refer to single white females, the initials SWF stand for "sovereign wealth funds," the quasi-public investment funds established by nations with revenues that exceed their operational needs.
So what? Maybe nothing. Maybe it's old-fashioned profit maximization (or its close relative, risk hedging) and nothing more. The most oil-rich nations on the map have themselves already drilled all the "easy oil." The peak is nearing -- we may already be there -- and the down slope, when the industrialized world makes the necessary and long-delayed adjustments to a new system of energy use -- could be nasty for them. The sensible use of their SWF funds is simply to prepare against that day.
One example is Dubai International Capital, which is said to have $13 billion worth of assets under management.
Still, oil peak oil schmeak. That's a lot of weight to throw around. Who, if anyone, should be worried? That is a question now coming under debate in both the "mainstream press" and here in the blogosphere. Will DIC throw its financial weight around on behalf of political goals rather than profit maximization? And, if so, at whose expense?
Meanwhile, Singapore has a couple of large SWFs, the more venerable of which is known as Tamasek. Tamasek has a substantial stake in both Merrill Lynch and Barclays.
The People's Republic of China's SWF, unsurprisingly named the China Investment Corp. assisted Morgan Stanley's balance sheet last year with a $5 billion infusion.
Indeed, the major western banks and brokerage firms that have weathered the recent crises best are precisely those that have had timely infusions from SWFs. But gratitude isn't much of a factor in these matters.
I have my own pet theory about SWFs, not a very original theory but one dear to me nonetheless. My view is that the real problem they pose is to activist investing. The notion that shareholders can and should shake things up, challenging intrenched laxy managers via proxy fights, is one that has only slowly gained ground in recent years. But what if managers can call in heavy-weight support on the scale of SWFs to squelch any possible proxy fight? Then ehy'll be able to go back to sleep again, won't they?
As a "proxy partisan," as one who thinks that proxy fights are in general a good thing, I'm wary of the passive investing model that SWFs seem in general to follow. They may become the ultimate benevolent fairy godmothers of their favored managers of their favored western corporations. And in that very quiet way they may do a good deal of harm.
I'm still thinking these things through, though.
So here's a definition. Outside of the personal-ads section of a newspaper, where they of course refer to single white females, the initials SWF stand for "sovereign wealth funds," the quasi-public investment funds established by nations with revenues that exceed their operational needs.
So what? Maybe nothing. Maybe it's old-fashioned profit maximization (or its close relative, risk hedging) and nothing more. The most oil-rich nations on the map have themselves already drilled all the "easy oil." The peak is nearing -- we may already be there -- and the down slope, when the industrialized world makes the necessary and long-delayed adjustments to a new system of energy use -- could be nasty for them. The sensible use of their SWF funds is simply to prepare against that day.
One example is Dubai International Capital, which is said to have $13 billion worth of assets under management.
Still, oil peak oil schmeak. That's a lot of weight to throw around. Who, if anyone, should be worried? That is a question now coming under debate in both the "mainstream press" and here in the blogosphere. Will DIC throw its financial weight around on behalf of political goals rather than profit maximization? And, if so, at whose expense?
Meanwhile, Singapore has a couple of large SWFs, the more venerable of which is known as Tamasek. Tamasek has a substantial stake in both Merrill Lynch and Barclays.
The People's Republic of China's SWF, unsurprisingly named the China Investment Corp. assisted Morgan Stanley's balance sheet last year with a $5 billion infusion.
Indeed, the major western banks and brokerage firms that have weathered the recent crises best are precisely those that have had timely infusions from SWFs. But gratitude isn't much of a factor in these matters.
I have my own pet theory about SWFs, not a very original theory but one dear to me nonetheless. My view is that the real problem they pose is to activist investing. The notion that shareholders can and should shake things up, challenging intrenched laxy managers via proxy fights, is one that has only slowly gained ground in recent years. But what if managers can call in heavy-weight support on the scale of SWFs to squelch any possible proxy fight? Then ehy'll be able to go back to sleep again, won't they?
As a "proxy partisan," as one who thinks that proxy fights are in general a good thing, I'm wary of the passive investing model that SWFs seem in general to follow. They may become the ultimate benevolent fairy godmothers of their favored managers of their favored western corporations. And in that very quiet way they may do a good deal of harm.
I'm still thinking these things through, though.
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