Best And Worst Sovereign Wealth Funds: A New Sovereign Wealth Fund Risk Index.

Posted by: Bruce Nussbaum on January 25, 2008

I was blogging away at the World Economic Forum in Davos, when Hugo Dixon, editor and chief of breakingviews.com sat down to show me his new Sovereign Wealth Fund Risk Index.

Now here at Davos, there is a palpable fear and loathing of these new SWFs (not to be confused with SUVs) because they are state-controlled funds that invest surplus national reserves that are being invested in the US and the West in order to deliver long-term returns. These SWFs hold about $2.5 trillion, a lot more than the hedge funds or private equity and they are investing in Citicorp, Merrill Lynch, Bear Sterns and a lot of other financial institutions—and other companies.

You can guess who has all this wealth--Middle Eastern oil exporters and export-rich China. The SWFs all say they are independent and only want a financial return on their money. But all are directly or indirectly controlled by governments, and the worry is that their investments will seek not only financial returns but political returns as well.

To guage that risk, Hugo ranked the top Sovereign Wealth Funds according to transparency (can you see who has control), appetite for strategic control and the political threat to western interests. A score of 7 or more is considered a moderate risk, a double-digit score is a high risk.

The China Investment Corp. scored the highests--11 points.
The Qatar Investment Authority scored 10 points.
The Venezuelan National Development Fund scored 10 points too.
The UAE Abu Dhabi Investment Authority--9 points.
Oman's State General RF--9 points.
Kazakhstan's National Fund--9 points.
Russia's Stabilization Fund--8 points.

Some 20 funds were rated. The Chinese, Qatar and UAE Sovereign Wealth Funds were the highest risk. The Norwegian Government Pension Fund and Canadian Alberta Heritage Savings Trust Fund scored 3 points and are the lowest risk.

I was at another India session today when Sovereign Wealth Funds came up and someone asked an official when India was going to have one. The official smiled and said "you first have to have sovereign wealth to have a Sovereign Wealth Fund and we don't have any yet."

Reader Comments

gregory

January 26, 2008 7:22 AM

Sovereign Wealth Funds would appear on the surface to effect Western Interests and give political punch to the countries that invest.However the West too has a much greater leverage tool to ensure that SWF's remain good global corporate citizens.This could take the form of freezing invested assets should the need arise.On a more positive note, the investments that SWF's make in the West can bring closer co-operation between countries and break down barriers.Davos is an excellent forum for this closer co-operation between countries and will enable peaceful solutions to Global problems.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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