Governments of all political persuasions are notorious for being reactive and not proactive. With the ongoing rise and importance of sovereign funds (state-owned investment funds) around the world and the likelihood this will continue to grow, the question for Labor is what is their attitude towards sovereign fund investment in Australia?
If 1H2007 was characterized by the rise of private equity culminating in the IPO of the Blackstone Group then the 2H 2007 has been characterized by the rise of sovereign funds.
We’ve seen Abu Dhabi Investment Authority take a stake in Citi, Qatar Investment Authority and Borse Dubai compete with each other for the London Stock Exchange, Dubai World buy a stake in MGM Mirage and overnight the Government of Singapore’s Investment Corporation (GIC) teamed up with an unnamed Middle East investor to secure a stake in UBS.
As I’ve written previously, it’s an often overlooked fact by the anti-globalisation cheer squad, that globalisation is giving a seat at the Board table of some of the world’s most influential corporations, to a more diverse array of investors.
Increasingly though, question marks are being raised over the influence of sovereign funds and how their interest in companies should be treated versus traditional cross-border merger and acquisition activity.
Any sustained correction in either our share market or others around the world, is going to see more sovereign fund activity not less, as they have so much cash available to invest and their timeframe for investment is years not months. It is precisely because of this inevitable development, that it is important for Labor to make clear where they stand on sovereign fund investment.
While it is tempting to simply say leave it to the market, the realpolitik of sovereign fund investment will mean that it inevitably becomes a major political issue as demonstrated in the US last year with the Dubai Ports World fiasco.
There needs to be transparency and consistency in the approach by government to the treatment of sovereign funds. Until we know exactly what the ground rules are, the big losers will not only be sovereign funds but mum and dad investors in the Australian share market.
Kevin and Wayne, over to you.