The Hindu Business Line : Wary of sovereign wealth funds

The article on sovereign wealth funds (Business Line, April 11) discussed the inability of the developed countries to force a code of conduct among sovereign wealth funds.

The fear of the developed countries, especially the US, about the motives of the SWFs being political is misplaced as these funds were created to meet the needs of the country in an emergency and are essentially return-oriented. Their objective is wealth maximisation. Naturally, they were investing in the US market, their funds parked in dollar-denominated deposits and assets.

But the depreciation of the dollar has shaken the faith of SWFs in the greenback and these funds are now keen to diversify into the currencies of other countries.

This has created jitters in the US and it has started seeing the flight through the political prism as five of the top eight SWFs are of Asian origin and most of them were created from oil surplus money.

Unlike hedge funds, which have risk, speculation and wealth maximisation as their motives, the SWFs have returns, liquidity and the stability as their aim. In fact, in the recent crisis in some US financial institutions, it is China’s SWF that came to their rescue.

The developed countries need not, therefore, be afraid of the motive of SWFs and will have to ensure that their currencies inspire confidence among investors through their market stability.

P. E. Muthu Mumbai

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