Glenn Curtis from Thomson Financial's Corporate Advisory Services group discusses Sovereign Wealth Funds.

Transcript:
Good afternoon. My name is Glenn Curtis. I am a Director in Thomson Financials Strategic Research group.

Our topic today is Sovereign Wealth Funds.

Sovereign Wealth Funds, or SWFs, are foreign government investment vehicles. Many of these funds are flush with petrodollars, and have made headlines recently because of their cash hordes. They are now beginning to diversify out of low yielding bonds and into other assets for greater returns.


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Over the last few years, SWFs have received increased scrutiny as their size and scope

has grown. Their collective assets under management are now estimated at 2.5 trillion

dollars. There are around 25 nations that either operate SWFs or are in the process of

creating them. The largest SWFs include the Abu Dhabi Investment Authority,

Norway's' Government Pension Fund, Singapore's GIC, the Kuwait Investment

Authority, and the China Investment Corporation.



Now SWFs are passive and anonymous investors, and they tend to be very long-term holders. However, the sheer number and size of recent SWF investments has created some controversy.

The continuing fallout from the U.S. sub prime mortgage market has left many leading

European and U.S. banks turning to SWFs for much needed capital infusions in order to

support their faltering balance sheets. The SWFs have thus far been willing and able to

invest for several reasons.

First, they have been attracted to the discount prices at which these companies are trading. Second, some argue that they may have been compelled to intervene as a lack of action could have resulted in a detrimental effect on the global economy and, in turn, on their own investments.

I should also point out that banks have found it easier to raise money from the SWFs, because they remain liquid -- and because the capital markets, particularly in the U.S., have been so weak.
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Earlier this year, Citigroup announced that the Government of Singapore and Saudi

Prince Alwaleed bin Talal had acquired a $14.5 billion stake in the company. This

followed Citigroup's announcement last year that Abu Dhabi Investment Authority had

acquired a stake. UBS, Merrill Lynch, Morgan Stanley, and Barclays also have reported

notable investments from SWFs.

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The American public has been concerned by these investments, and has raised issues of transparency, corporate governance and the fear of foreign government influence on domestic corporate strategy.

Many of these criticisms are similar to those made about hedge funds a few years ago. However, it is important to note that SWF's profits generally support governments and entire economies, rather than a few wealthy individuals.

In addition, SWFs are again generally long term strategic investors while hedge funds have tended to concentrate on a shorter time frame of investment.
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With regards to resolving transparency and corporate governance issues, Norway's SWF is considered by many as the benchmark model in this field, with arms length

management from government, disclosure of investment portfolios and returns on an annual basis as well as regular audits from external regulators.

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Looking ahead, there have been calls for a global code of conduct for SWFs but attempts by the IMF in generating a consensus among key players have so far failed. That said,
Australia, the EU, and the U.S. are actively developing their own set of rules, which

could some argue, force SWFs to invest elsewhere. Incidentally, China has hit back,

viewing increased scrutiny as a prelude to a new era of protectionism.


For corporate audiences, the key takeaway is to be aware of this new breed of investor and to be familiar with all the key facts in the hope that cooler and wiser heads will prevail.

For further coverage on this issue, please check out TF contributions in the FT, The

Washington Post and IR Magazine. The Davos talk on SWFs is also available on the You

Tube World Economic Forum playlist. And finally I would refer you to Strategic

Research's Simon Tse and his report on the subject.

For those wishing to view an executive summary of Simon's report or executive summaries of other reports that Strategic Research has disseminated please go to the Corporate Services Center at www.thomson.com/financial/CorporateResour...

Again, my name is Glenn Curtis with the Strategic Research Group. Thank you.

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