Worries over the actions of sovereign funds from China, Singapore, and the Middle East have government officials in the US and the UK voicing concerns about whether all of their large financial institutions will end up being based in Beijing or Kuwait City. They should have thought of that when they avoided regulating mortgage-back instruments.
Perhaps there is a solution. The FT writes that the head of big bank Standard Chartered wants "state-backed investment funds should agree to a code of conduct governing their behaviour or risk being branded “irresponsible” players in the global economy." The concern here is that the "sovereigns" will become "irresponsible participants in the world economy.”
There are already several safe-guards on sovereign fund activity. In most cases, the investments they make are for minority interests. Capital often goes in a convertible debt with no voting rights,or common shares with little or no say in management.
But, some private and government interests don’t think that the normal limitations that would apply to Carl Icahn or Kirk Kerkorian are tight enough for overseas investors.
Perhaps the free market should not be so free. Bad decisions at financial companies should be rewarded with restrictions on new investors, but only if they come from outside the US or the UK. If Carl Icahn wants to buy Citi and liquidate it, that is fine. But, the Saudis can’t have 10%.
Douglas A. McIntyre
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