May 30, 2007

Wealth funds of nations

China has established a large national fund for investment but other nations have large funds as well. The largest is the ADIA fund of the UAE which has US$875 billion in assets Singapore, Saudi Arabia Norway have $300-330 billion funds.

Recently, Japan, Russia and India have reportedly been considering setting up funds along similar lines. Some estimates put the size of the funds at $2.5 trillion by the end of this year (in contrast, hedge funds are thought to have a mere $1.6 trillion), with another $450 billion in transfers from reserves being added annually. Including capital appreciation, the amount could swell to $12 trillion by 2015.

The world's entire supply of shares is $55 trillion, and bonds account for a similar amount. Sovereign-wealth funds could soon become the most important buyers of such assets, and many others besides. If so, the world will witness the intriguing spectacle of its largest private companies being owned by governments whose belief in capitalism is often partial.

The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps.

the Blackstone deal:
“Crony capitalism? It is a marriage made in heaven—a partnership that does not want investors to ask questions with a country whose firms do not want investors to ask questions.

It is widely believed that by having China as a partner, Blackstone will receive preferential access to China's market (as well as providing China with experience it clearly covets on how to set up its own domestic private-equity industry).