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Who's Afraid of Sovereign Wealth Funds?


Foreign investment vital to US economy.

The credit crunch has taken a bite out of Mergers and Acquisitions. Globally, M&A activity is down about 27% this year.

Through September 1st, the value of the M&A market hit $2.5 trillion compared with $3.46 trillion for the same period last year, The Wall Street Journal reports, citing figures from Dealogic.

Sponsor-backed transactions plunged 63% to $318.5 billion. But mining deals totaled $149.6 billion, up from $63.1 billion, and consumer products deals increased to $178.9 billion from $61.9 billion.

Cross-border acquisitions by sovereign wealth funds totaled $52.1 billion, up from $18.7 billion from the same period a year ago. It was the highest level of activity from such funds to date. Singapore led the charge of such funds with $20.1 billion, followed by the United Arab Emirates with $10.7 billion and Qatar with $10.3 billion.

The increased activity raises a basic question: Who's afraid of sovereign wealth funds? At least one capitalist sees profits ahead. The U.S. Treasury is working with the International Monetary Fund to draft a set of "best practices" to guide investments made by sovereign wealth funds.

Concern about sovereign wealth funds may degenerate into protectionism wrapped in national security. No one suggests vigilance should take a holiday, but killing foreign investment would gut the US economy and could limit exports. Major American companies, including Caterpillar (CAT), Coca-Cola (KO) and Boeing (BA) earn significant revenue overseas.

For more on foreign investment in the US, check out Hoofy and Boo's always astute report.

No positions in stocks mentioned.
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