Author: Vivian Lewis
Covestor model: International Yield
As North Koreans starve while their regime totters on, as Bashir Al-Assad shoots people in areas of Syria opposed to his dynasty, a question springs to mind: Who exactly is the sovereign for whom sovereign wealth funds invest?
Is it the regime? Is it the people? The politicians? Is it the princelings? Is it the guy who controls the army? Is it the autocrat who kills citizens opposed to his rule? Is the sovereign wealth fund the property of the sovereign (however illegitimate) or of the population?
China is proposing to add up to $200 billion more to its sovereign wealth fund for investing outside the country, an alternative to putting the national trade surplus into depreciating U.S. Treasury bills. Is this the best use of the money for the people of China?
Middle Eastern princelings enchanted by horse racing want to buy Irish stud farms with the sovereign wealth funds of their tiny emirates and kingdoms. Ireland will be happy to have its race horses subsidized by Arab oil. But is this the best use of the money?
Meanwhile Mustafa Zarti, the former manager of the Libyan wealth fund (a reasonably qualified Libyan liberal appointed thanks to his friendship with former Libyan liberal ‘white hope” Saif Qaddafi, son of Muammar, now no longer credible as a reformer) fled to Austria. There Zarti got his MBA. He flew out because he opposed the suppression of the revolt. Now his own personal bank accounts are blocked by Vienna and the European Union.
The wife of the deposed president of Tunisia reportedly helped herself to the national gold supply before fleeing the country.
Some differentiation between sovereign wealth and the wealth of the sovereign might be useful in these locales. It began in the West about the time of Henry VIII.
Brazil’s sovereign wealth fund is in the worst conflict of interest of all. Its largest holdings are in Petrobras, a state-controlled oil company. But PBR has fallen nearly 10% in the past half year because the Brasilian government has imposed pressures to keep oil prices down. Petrobras’ gasoline prices have been kept steady since 2008, while the price of a barrel of oil has soared by over 60% in that same period. So Brazil is hurting its poor and marginal citizens in order to subsidize motorists. Even those driving a Ferrari or a Rolls.
