SWFs as lenders of last resort

At the World Economic Forum 2008, the Time Board of Economists remarked that the emergence of SWFs may change the dynamics of the world economy. One of the questions debated during the forum has been whether the SWFs are free market players or state agents, since they depend directly on governments. Another was to what extent SWFs are power brokers and power centres.

The world's perception of the sovereign funds has shifted dramatically in the past four years. Before the crisis, they were viewed in many quarters with a mix of admiration and suspicion because of their size and secrecy. There were moves by bodies such as the Group of Seven to restrict the funds' activities because of concerns that they weren't investing solely for returns but for more nefarious purposes dictated by their governments.

The plunge in markets served to shift that viewpoint, as investors such as Temasek and the Kuwait Investment Authority stepped forward with cheques to help recapitalize some of the world's biggest financial institutions, including Citigroup Inc. and Merrill Lynch & Co. That helped to give the funds a reputation as good citizens, if not always good investors (many bought their stakes in banks too early and have since lost money).

The result is that funds that were once feared are now feted, and they are taking advantage by seeking opportunities in markets such as Canada and Asia, especially because many other rivals for purchases are still lacking cash.

Sovereign wealth funds controlled about $3.2-trillion (U.S.) of assets worldwide in March 2009, according to estimates from consultancy Prequin, a number that has undoubtedly only grown as the markets have surged. Temasek's portfolio jumped 32 per cent in the second quarter, helping it recoup its first-quarter losses and giving the fund the confidence to make further acquisitions should markets take a dip. The fund is eyeing opportunities in [China and India] over the long term."

China Investment Corp., by comparison, has been active around the world. It has snapped up a stake in Canada's Teck Resources Ltd. and is investing heavily in real estate.

Many of the world's sovereign wealth funds were established in the past decade as the price of oil surged, filling the coffers of petroleum-rich countries such as Abu Dhabi that then looked to diversify their economies to prepare for the day when wells run dry. Other countries such as China and Singapore that pile up heaps of foreign currency reserves from export-based economies have also founded big funds.

Because of their steady cash inflows, most sovereign wealth funds have been able to withstand the hits to their portfolios.

One major exception is Dubai, where the country's main funds may have to be liquidated. They augmented their own capital with loans, so when some of the investments in areas such as hotels and department stores went sour, the funds ended up in danger of closing.

Here are some of the top SWFs:

• Abu Dhabi Investment Authority

Country - United Arab Emirates; Size: Unknown, estimated at as much as $875-billion

Source of funds -Oil; Founded - 1976; Notable investments - Citigroup, Toll Brothers

• Government Pension Fund of Norway

Country - Norway; Size - $400-billion; Source of funds - Oil;

Founded - 1990; Notable investments - Owns 1 per cent of all global stocks

• China Investment Corp.

Country - China; Size - $289-billion; Source of funds - Export earnings

Founded - 2007; Notable investments -Teck Resources

• Kuwait Investment Authority

Country - Kuwait; Size - $200-billion; Source of funds - Oil

Founded - 1953; Notable investments - Citigroup, Daimler AG

• Temasek Holdings

Country - Singapore; Size - $117-billion; Source of funds -Export earnings

Founded - 1974; Notable Investments - Barclays, Citigroup, Singapore Airlines