Wednesday, February 20, 2008

Sovereign funds and banks

Once the target of various takeover rumours, Barclays now appears to be setting its sights on filling the gap left by the US investment banks that have suffered billions in write downs associated with subprime losses.

Interestingly, a question I have been asking in recent weeks, is what would have happened if sovereign wealth funds (SWFs) from Singapore and Kuwait had not bailed out some of the American banks eager to replenish their liquidity following such massive write downs?

The answers have been varied, but the bail outs themselves signify a new world order that is emerging, or as McKinsey likes to refer to the sovereign wealth funds, they are new 'power brokers' alongside hedge funds and private equity.

In fact, estimates suggest that sovereign wealth funds, while they may have considerable sums to invest, are not as big as say the Top 10 asset managers who are valued at $13.4 trillion, followed by the Top 10 central banks with reserves worth $4.4 trillion, the Top 10 pension funds valued at $2.9 trillion, and the Top 10 SWFs valued at $2.3 trillion.

But regardless of where SWFs sit in the financial pecking order, the sentiment seems to be that without the investments from Kuwait Investment Authority, Temasek Holdings and other SWFs, that the major US banks would have been forced to consolidate.

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