Sovereign Wealth Funds (SWF’s) Capturing Attention

We wrote about the growth of Sovereign Wealth Funds last week. Our main theme was called “on the road to financial serfdom” SWF investing is n extension of government intervention in markets and can have a major impact on prices given their size and the lack of transparency concerning their investment objectives.

Both the Financial Tines on May 25 and Barron’s wrote articles on SWF’s and there potential impact on markets. The size of these funds now tops 2.5 trillion in assets. The most interesting feature of both articles is the acknowledgment that most people do not know what are the investments or objectives of these funds. While the focus has traditionally been on fixed income, the latest deal between Blackstone and China shows the desire to move beyond traditional investing in safe assets and into private equity.

The impact from SWF’s may be felt in the coming months. Any continued back-up in fixed income may cause the amount invested in US Treasury securities to slow or reverse. This reevaluation of fixed income holdings will place further upward pressure on rates. The mystery is determining where these funds will go.