Sovereign Wealth Funds - Friend or Foe?

Posted on February 25, 2008
Filed Under Investing |

While the financial markets in the west have been suffering a collective nervous breakdown, with many participants having to lie down in darkened rooms, sovereign wealth funds have quietly been buying into large chunks of leading financial institutions. Their total spend, so far is believed to be in excess of $2,000bn and counting!

Until the markets and banking system return to some kind of equilibrium it is difficult to decide whether SWFs are the cavalry riding to the rescue or Trojan horses. All we can say is that these massive cash injections have thrown lifelines to banking giants such as UBS. GIC, Singapore’s SWF, investment of $8.9bn (£4.5bn) is just one recent example.

This weekend the Telegraph reported that the latest foray by a foreign government entity into struggling and undervalued Western banking shares could be the Qatari government who is contemplating making an investment in the Royal Bank of Scotland (the UK’s second largest bank).

Aside from the political issues surrounding these investments these buy ins are further proof of Warren Buffett’s adage:  buy when the market is fearful and sell when it is greedy.

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