Surprise goeth before the fall. From politics to finance, we have certainly seen our share of surprises, and plenty of falls, in the past year: U.S. Senator John McCain’s pick of Alaska Governor Sarah Palin as his running mate in the U.S. presidential election stands out among the most recent shockers (honestly, how many people thought at first that he might have meant Michael Palin of Monty Python fame?). Whether his choice proves to have been inspired or inchoate remains to be seen, though it’s certain to provoke fevered debates in the office, at the gym or over a drink at the bar.
In retrospect many surprising events, like the candidacies of McCain and his Democratic rival, U.S. Senator Barack Obama, assume an aura of inevitability, and it’s easy to forget just how unlikely they once seemed. The experience feels somewhat different in the world of finance: In theory, the collapse of the credit-fueled housing house of cards appears now to have been inevitable, but the roster of victims, including formerly august, now shaken, institutions like Citigroup, Merrill Lynch and UBS, continues to amaze.
These firms — and others — have reached out to grasp the helping hands of another group of institutions, sovereign wealth funds, whose emergence on the global scene in the past year has been both surprising and inevitable. Flush from the rising prices of oil and other commodities, or from surging trade surpluses, countries from Asia to Europe and the Persian Gulf are using sovereign funds to diversify their sources of income and, longer term, strengthen the economic well-being of their citizens.
Their investments in Citi, Merrill, Morgan Stanley and UBS, among others, have helped prop up a shaky global financial system. But the fact that they are owned by national governments and tend to operate in secrecy has set off no small amount of controversy. No one can deny their clout: The International Monetary Fund estimates that the 30 or so sovereign wealth funds control about $3 trillion in assets — more than the total invested in hedge funds and private equity shops combined — on their way to, perhaps, $10 trillion by 2013. Early this month the IMF helped reach a preliminary agreement with these funds on principles for commercial investment.
In this issue, we take an in-depth look at some of the world’s biggest and most powerful sovereign funds, from Russia’s new National Welfare Fund to the $370 billion Government Pension Fund - Global of Norway, renowned for its openness, to the fledgling China Investment Corp., which many believe could become the world’s most influential fund. Lou Jiwei, in his first interview since becoming chairman of CIC at its September 2007 launch, tells Institutional Investor International Editor Tom Buerkle and Asia Bureau Chief Allen T. Cheng: “We’ll be a good corporate citizen. We will contribute to economic growth and prosperity.”
Success may not be inevitable, but it won’t come as a surprise.
