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Sovereign wealth funds (SWFs) are state owned funds of financial assets. Their size dwarfs hedge funds. China has huge sovereign wealth funds, about $2 trillion, from trade surpluses and currency manipulation (buying dollars). Oil producing countries ditto, from oil wealth.
The funds can invest and spend based upon geopolitical strategy, rather than a mere profit-driven market player.
France is worried and wants to fight back, but the WSJ editorial page does not want to interfere with hostile countries state-controlled wealth.
That's the message the French President delivered to his fellow European leaders yesterday when he urged them consider forming their own state investment funds to fend off foreign takeovers of "strategic" companies. "I don't want European citizens to wake up in several months and find European companies belonging to non-European capital, which bought [them] at the share price's lowest point," he told the European Parliament.
Not to worry says the WSJ. Some countries signed a recent agreement to play nice.
Perhaps Mr. Sarkozy fears that sovereign funds will invest in European companies to achieve political, rather than economic, goals. But last month the International Monetary Fund and two dozen key countries with sovereign funds agreed on a voluntary code of conduct covering concerns including investment goals, transparency and risk management. There's no reason that code won't hold up with relatively lower share prices.
Yes. China will play nice. China did not sign that nice agreement. And who enforces this code. Self-regulation? We've seen how that works on Wall Street.
What would the WSJ say if the U.S. Department of Defense owned companies or controlled its own investment funds? Would we not be socialists?
By the way, look at this chart on SWFs comparing their transparency versus strategic objectives.
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