Sovereign Wealth Funds (SWFs) controlled more than $11.8 trillion in 2023, beating hedge funds and private equity firms combined, up from $1 trillion in 2000. State-owned enterprises (SOEs) had assets worth $45 trillion in 2020, the equivalent of half of global gross domestic product, up from $13 trillion in 2000. The Organization for Economic Cooperation and Development calculates that half of the world’s 10 biggest companies and 132 of its 500 biggest are SOEs. The state is not only back. It has burrowed into the heart of the capitalist economy — running companies (often across borders) and shaping capital markets.”
– Adrian Wooldridge, Bloomberg ($)
I would argue that this issue is as big, or more serious, than the usual complaint that boards of large, mostly listed, companies have gone “woke”. Because as we have seen, as interest rates have risen to curb inflation, some of this wokery has gone into retreat. But sovereign wealth funds are a different kettle of fish. With a few exceptions (Norway), nearly all the countries operating SWFs are commodity-rich autocracies, such as those of the Gulf, of varying levels of opacity. As Wooldridge says, this creates a big problem because the healthy “creative destruction” of free market capitalism cannot so easily work its brutal, if necessary, magic.
Recently, there was an attempt – since thwarted, as far as I can tell – by an Abu Dhabi-backed fund to buy the Telegraph Group, owner of titles including the Spectator and the Daily Telegraph. That caused a political storm. But many other acquisitions, such as of ports, sports clubs and infrastructure, go on and are routine.
A question I have is whether the current Labour government, full of managerialist/statist types with no feel for entrepreneurship and the healthy ups and downs of capitalism, will be tempted to do something similar, although the UK, unlike the oil-rich potentates of the Gulf, is short of funds. But even so, the Starmer government might be tempted, maybe in concert with other countries, to try and get into the state capitalism act. It is probably already doing so.
The question is whether any of the opposition parties have the fortitude and discipline to mount a coherent takedown of all this, and perhaps join it with a similar assault on the growing spread of the “administrative state”. In many ways, the rise of this state, and SWFs, are part the same, troubling trend.
The Norwegian Sovereign Wealth fund makes sense. They’ve got oil for a limited amount of time. Rather than blow it within Norway and cause inflation, invest it overseas in non-Oil related businesses and then enjoy the dividends.
Then again, it’s easy when you’ve got a population in the low single millions.
The Saudi’s have tried the same, but unlike Norway, their investment comes with strings attached, especially when it concerns media companies.
Net result is foreign investment becoming foreign interference in domestic affairs / policy.
I suppose that the UK has the reverse, a sovereign debt fund whereby the National Debt is a way for rent-seekers to get interest on the back of taxpayers for monies lent to the government and spent and this set-up, and the (fanciful) claim on the lenders’ capital, will burden the productive in the UK for the foreseeable future.
But I note that Norway also has a national debt, although it states that its assets exceed its liabilities.
Of course, the problem for a State owning assets in other nations is that at the ‘stroke of a pen’, those assets can be seized, as the Russian and Iranian finance ministries could attest.
But that is true of any investment anywhere other than at home.
Through diversification of location, investment category and RAROC (Risk-adjusted Return on Capital), you might balance that, but there are few “zero risk” investments.
Interesting point on inflation wrt Norway JG.
I’m no financial whiz but I can tell you I wasn’t happy when the Saudi’s bought NUFC. I hated Mike Ashley and told my mates, “Anyone but him!” Well, I got my wish didn’t I? And in spades.
It is state ownership – by foreign governments. It is NOT capitalism – if by capitalism is meant the private ownership of capital.
And the pension funds and other institutions are not radically different – the managers are not investing their own money, and they depend on the support of the financial system and, in turn, of the government.
Perhaps those people setting up communities of private farmers and craftsmen in far off Paraguay are not so foolish as the BBC says they are.
“You can do the same thing in West Virginia” – yes but you are at risk from the FBI and other vicious organisations.