What is your take on sovereign wealth funds buying into U.S. companies? The stakes are big, like the Singapore government’s 10% of UBS, and the impact could be, too, like Prince Alwaleed pushing Chuck Prince out of Citigroup.
Now wait a minute. Was Chuck Prince pushed out of his job by a member of the Saudi Arabian royal family? Or was he asked to move on by Citi’s board, which probably had input from, among many others, a major, concerned, long-term shareholder who happens to be Saudi royalty? Our bet is the latter scenario, and in a nutshell, that’s why we are not even slightly worried about the recent upwelling in sovereign wealth fund (SWF) investments.
Yes, as the feature story earlier in this issue suggests, some of the stakes being taken are substantial. Along with the UBS deal, for example, Singapore’s state-run Temasek Holdings recently bought about 9% of Merrill Lynch, the Chinese government spent $5 billion for a piece of Morgan Stanley, and Dubai’s state-owned investment group took a 6.5% stake in MGM Mirage.
These transactions seem to suggest that foreign investors, be they governments or individuals, are buying into U.S. companies for the same old opportunistic reasons everyone else is. They see sound companies that can teach them a lot and are undervalued because of the weak dollar and hard times but will one day come back strong. Simply put, they see great deals, and they want in.
What else is new on Wall Street? We consider all the recent SWF activity the natural evolution of globalization, and at least for now, it’s all good. At least for now, we say, because of course we’re not oblivious to the danger of foreign investment in America’s strategic assets. You’ve heard the doomsday cluckings of Chicken Little xenophobes, so we need not repeat them. Nor will we dismiss them outright. But at the current levels of investment, threatening developments seem highly unlikely. If that changes, expect U.S. boards to step up to the plate on homeland security.
And if they don’t, recent history shows there will be more than enough government intervention. Enough about the dangers of foreign investment. There’s a big upside to all that offshore money pouring into the U.S. Call it a recycling of the trillions of dollars we’ve shelled out for low-cost imports and Mideast oil. That’s globalization at work. And while it recycles, globalization expands opportunities for the world’s too-numerous have-nots, and perhaps best of all, boosts the economic, political, and social interdependence of nations.
In these fraught and divisive times, who, we ask, could do anything but cheer that dynamic?
This question and answer originally appeared in Business Week magazine on January 21, 2008.
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