Eddielogic

– Thoughts on Strategy and Management

Government investment funds focus on banks

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A couple of days ago we had a look at the current trends of government investment funds (sovereign wealth funds). Today we saw the next move of an investment fund: GIC (Government of Singapore Investment Corporation Pte. Ltd) and another investor subscribed (it might be Abu Dhabi – ADIA) subscribed convertible bonds of UBS, the famous Swiss bank. GIC subscribed for 11 billion CHF and the other investor subscribed for 2 billion CHF. In the case that the conversion will take place, GIC will achieve a share of 9 %; the other investor will have a share if 2 %.

It seems to be that large financial players have been become the investment target. A couple of weeks ago ADIA acquired 4.9 % of Citigroup for 7.5 billion USD. Bear Stearns has a large Chinese shareholder due to an exchange of stock since October 2007. In the last six months Government investment funds (sovereign wealth funds) made investments about 26 billion USD in financial players, including banks and other financial service providers. Now the total of all investments is 35 billion USD.

A good example for these investment activities is Singapore and its fund “Temasek Holdings”. 40 % of its capital has been invested into the financial industry. One objective is to participate in an increasing share price, driven by the growing middle class in Asia.

To get an overview the following table summarizes major investments of Government investment funds (sovereign wealth funds) within the financial industry:

Investment target

Investment volume in billion USD

Land of investor

Share in %

Standard Chartered

7.1

Singapore (Temasek)

17.2

Blackstone

3.0

China

9.9

London Stock Exchange

1.9

Dubai

28.0

Marfin Popular Bank

1.7

Singapore

16.5

Carlyle Group

1.4

Abu Dhabi

7.5

Source: FAZ; own research  

Some other interesting figures related to these types of funds: Government funds like the mentioned above ones exist since a few decades; the government investment funds of Kiribati was founded in 1956. However, the capital of these funds has increased enormously in the last decade. Commodities (oil) and trading surplus represent the major financial source for them.

In total these funds have to manage capital of 2,800 billion USD (but we have to have in mind that this is just the tip of the iceberg; these nations also have made major investments in government bonds). Morgan Stanley expects that the total value of these funds will achieve 12,000 billion USD until 2015.

 

 

Source: FAZ (2007): Staatsfonds bringen ihr Geld zu Bank; 11.12.07, volume 288, page 25

 

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