Sovereign wealth funds told Pacific Rim political leaders on Saturday they could play an important role in the global economic recovery if countries did not obstruct their investments. Some of the world's biggest state funds from Asia, Kuwait and Norway said at a summit in Singapore they were one of the few sources of long-term capital prepared to ride out bouts of market volatility amid a still uncertain global recovery. “I would like to emphasize the importance of keeping global capital markets open,” said Tony Tan, deputy chairman of the Government of Singapore Investment Corp, which manages an estimated $200 billion or more. “If governments closed their capital markets to sovereign wealth funds, recipient countries will face higher capital costs, while sovereign wealth funds will see their opportunity set decrease,” he told regional CEOs and politicians. The rare panel of normally media shy wealth funds used the high-level forum to call for countries to open up their markets, echoing earlier speeches made by leaders from China to Mexico that warned against protectionism hampering a trade-led recovery. China has had investments by its state-owned firms in the United States and Australia blocked by politicians, while Temasek, GIC's sister fund, has run into difficulties in Thailand and Indonesia. China Investment Corp (CIC), which has some $300 billion in assets, said that sovereign wealth funds were passive investors who were not keen to manage companies they invest in, an effort to allay Western fears investments are politically motivated. “Sovereign wealth funds do not join the chase for excessively high returns,” Chairman Jin Liqun said, adding the funds sought reasonable returns above the yields on US bonds rather than the kind of high returns that carry big risks. “Sovereign wealth funds have helped stabilize the global economy. They stay put when others are pulling out or inject new capital in financial institutions or other businesses,” he said. Norway's oil fund, which manages about 1 percent of global stocks with $455 billion of assets, told the forum that many sovereign funds had investment horizons of 20 to 30 years. However, sovereign funds, which together manage around $3 trillion of assets, are becoming more aggressive after turning cautious last year at the height of the credit crisis when they lost billions on banks such as UBS and Citigroup. Barclays estimates China's CIC and Abu Dhabi funds led the way this year with 28 deals worth $22 billion, with most of the money going to natural resources. GIC and Temasek both offloaded Western bank stakes this year to shift to emerging markets. Mexico said its President Felipe Calderon had met Temasek's chairman on Saturday on the sidelines of the meeting to discuss investments in its financial sector and ports. The state funds also warned of risks in the medium-term given the patchy recovery in the United States and higher long-term inflation if governments fail to adequately pull back stimulus measures introduced over the past year. “The global economy has not yet been lifted out of the recession on an irreversible basis,” CIC's Lin said. “The clear and present danger at this stage is the mood of euphoria.” Norway's oil fund told Reuters that it had stopped buying equities since the summer and was buying bonds, as it saw consolidation and profit-taking in markets till the end of the year. The head of South Korean sovereign wealth fund KIC was more bearish, telling Reuters that global financial markets will likely slow next year because the private sector is not strong enough to make up for the waning effects of stimulus measures. “Financial markets did overshoot this year. I think they will slow next year,” said Chin Young-wook, CEO of Korea Investment Corp. He said hedging against inflation and the weak dollar was “very important”. The trend of expanding emerging market sovereign pools of capital is likely to continue as countries look for higher returns on their savings, although Thailand's finance minister told Reuters it was not ready for such a fund. “You see emerging markets, including the oil producing countries, are actually supplying capital to the developed countries. This is the new reality we have to understand,” said CIC's Jin. “It is very important for the developed world to appreciate the positive impact of sovereign wealth funds.”
