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Sovereign wealth funds pull back

Marketplace Staff Sep 11, 2009

Sovereign wealth funds pull back

Marketplace Staff Sep 11, 2009


KAI RYSSDAL: How about this for a blast from the financial past: sovereign wealth funds. Before the global economy went south, those huge pools of government-controlled capital were all the rage. In the oil-rich Middle East especially.

But Bloomberg News reports today that Dubai’s fund is going to stop making investments.

Just like the rest of us, sovereign funds have had a rough couple of years. Marketplace’s Jeremy Hobson reports from New York that some of them are starting to pull back.

Jeremy Hobson: Sovereign Wealth Funds have exploded in the last several years, as countries made investments abroad that offered high returns.

Marc Levinson is senior fellow at the Council on Foreign Relations. He says many of those investments turned out to be pretty risky.

Marc Levinson: Many sovereign wealth funds have lost money. That is a hard sell politically and so I think one of the issues that many of the sovereign wealth funds and the governments that run them now have to deal with is explaining to your population why you’ve lost money by investing in another country.

Part of the explanation is a lack of expertise. According to Kevin Kajiwara, the director of Global Markets for Eurasia Group.

Kevin Kajiwara: One of the real constraints that a lot of sovereign wealth funds and sovereign investment vehicles have had, and this is even more the case in the Gulf, has been one of human resources. They just don’t have the numbers of professionals available to manage a lot of these investments.

We’ve heard a lot about sovereign wealth funds in recent years, especially when they stuffed their money into high profile investments, like Ferrari or the Chrysler Building.

But Kajiwara says these days, the funds are trying to keep a lower profile. Just look at China’s fund, called CIC.

Kajiwara: What you’re seeing is them using their Swiss arm to invest in hedge funds and private equity funds and be much more quiet about how they’re taking their positions.

Still, Kajiwara says Americans shouldn’t be too concerned about the woes of sovereign wealth funds. Sure, they dwarf the hedge fund industry. But they remain much smaller than other institutional investors, like pension funds.

In New York, I’m Jeremy Hobson for Marketplace.

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