Thursday, February 2, 2017

Today I Learned About Sovereign Wealth Funds

Without giving away too many details, my job is loosely related to automobiles. Today I researched the parent company of one brand of vehicle, and found that it is a subsidiary of the German conglomerate Daimler AG. Daimler's brands include Mercedes-Benz. Smartcar, Mitsubishi's commercial truck business, and a variety of other automobile-centric businesses.

But we don't care about their actual business in this post. The most intriguing part for me was their company ownership breakdown:

  • 74.8% institutional shareholders (banks, insurance companies, hedge funds, endowments, mutual funds, things like that)
  • 15.3% private shareholders (like my rich grandmother and your boss' boss)
  • 3.1% Renault-Nissan alliance (the Miller-Coors of the auto industry)
  • 6.8% Kuwait Investment Authority
That last one is what caught my eye. So, like, the country of Kuwait has a whole government division that is active in world trade markets? And they control $592 BILLION worth of assets?

Well, friends, it's actually a really common thing for world governments. And I had no idea about any of it. Here's the top 25 countries in terms of sovereign wealth fund size (via Wikipedia, because this whole exercise was like a goddamn Wikipedia race for your boy)

China's government controls a trillion and a half dollars in worldwide financial assets. Combine that with the UAE's $1.2 trillion and those government funds alone control more money than the GDPs of thirty different (mostly African and South American) countries (via Wikipedia again).

An interesting aspect of that list to note is the countries that have multiple government-controlled funds with different names and controllers. China's two largest, the China Investment Corporation and State Administration of Foreign Exchange, do wildly different things:
  • CIC:  responsible for managing part of the People's Republic of China's foreign exchange reserves for the benefit of the state, seen as being "firmly entrenched" in the political establishment
  • SAFE: tasked with drafting rules and regulations governing foreign exchange market activities and managing the state foreign-exchange reserves
Okay so maybe those two entities are basically the same goddamn thing. But are you ready for some real shit? Wikipedia says this:
"With the burgeoning of China's reserves and amidst increasing rivalry between state agencies, there are signs of growing independence of and competition between the subsidiaries."
It's tough to say, but it seems like we're headed for a showdown between CIC Chairman Ding Xuedong and SAFE Director Pan Gongsheng. Keep an eye on that beef, because rising global tension certainly won't make their relationship any more tranquil.

Behind China and the UAE, the nation with the largest SWF is Norway. And all of the assets being considered there are part of one huge government pension fund. You may also hear it called by its old Norwegian name, Oljefondet ("oil fund").

It is called the oil fund because it is just that - a fund into which the surplus wealth produced by Norwegian petroleum income is deposited. Rather than spend that excess wealth on yachts and jewelry and hookers (looking at you, numbers 2, 4, 5, 6, 7, 8, and 16), the good old Norwegians throw it into their pension fund.

But apparently, it's become sort of a big point of dispute for Norwegian politicians as it's ballooned to its mammoth size. The (goddamn) liberals want to take more of the extra petroleum income and use it to fund government spending. The (pussy ass) hippies want to diversify from global stock markets because they are afraid of volatility (that one might actually make sense now). And the (corrupt) Norwegian GOP probably want to embezzle the money or use it to boost their own stock prices.

But about that third point, there is a HUGE (yuge?) list of companies who have been excluded from the conversation about where the oil fund can invest its money. Those companies partake in the following sorts of activities:

  • production of tobacco
  • environmental damage (including one that got called out for "illegal logging")
  • phosphate production in the Western Sahara (oddly specific)
  • human rights abuses
  • corruption
  • sale of weapons and military equipment to non-friendly nations
  • production of air-dropped or ground-launched explosives
  • production of nuclear arms
  • violation of the Geneva Convention
  • Wal-Mart
So we kind of have the whole spectrum here. Skoal mint long cut is apparently not a cool thing in Scandanavia. Cutting down trees is also pretty not fetch. And then we work our way up to human rights abuses and goddamn weapons of mass destruction. Norway just lumps them all together and excludes them, because they want their oil fund to help create a more pleasant Earth. 

1 comment:

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