SWF Radar YouCantMakeThisStuffUp

The Chronicle, which describes itself as “The Independent Daily at Duke University,” rails against Duke’s recent naming of Gao Xiqing, the general manager of the China Investment Corporation (CIC), to its board of trustees. It writes that:

Although we [the authors of the piece] have great admiration for the Chinese people, their culture and their achievements, all enhanced by the stunning success of the Beijing Olympics, their tyrannical government merits our condemnation. And Gao is a creature of that government, born of it, beholden to it and now begetting of it. His elevation to the Duke Board is highly inappropriate.

How can the same Duke Trustees who established a policy to bar investment in Darfur because of genocide, who divested from South Africa because of apartheid, who stood for free speech at the Palestinian conference, now accept in their midst a leader of the repressive Chinese regime that overruns all these values. Indeed a leader whose financial acumen will nourish the regime!

The Telegraph appears to be the first newspaper to fall victim to the weird name the IMF International Working Group of Sovereign Wealth Funds (IWG) has given the code of conduct it is preparing.

I wrote in June that, “I'm not sure it's a great choice, seeing that it is very similar to GAAP and expands into something that contains nothing intrinsically SWF-related.” And, sure enough, The Telegraph now writes that, “The group, organised by the International Monetary Fund, was formed in May and given the task of producing a set of self-regulating industry guidelines, dubbed the Generally Accepted Accounting Principles (GAAP).”

The Times writes that, “China’s secretive sovereign wealth funds will help its state-owned companies to expand overseas in a shift of strategy after economic talks with America [led on the American side by Henry Paulson], according to analysts in Shanghai. … Sovereign funds will assist inexperienced Chinese companies in financing, foreign-exchange risk management and handling trade barriers.”

According to the article, China agreed in its negotiations with the US to open its capital markets further to foreign institutional investors, its aim being to “secure reciprocal treatment to smooth the way for its own companies to build up their foreign holdings.” Such reciprocation would free up China’s SWFs, through supporting Chinese companies, to become “indirect owners of big stakes in troubled financial institutions such as Lehman Brothers as they step up the pace of investment abroad.”

Certainly this focus on supporting companies, which must surely mean SOEs, in their expansion abroad adds an extra degree of political manipulability to Chinese SWFs. Brad Setser, in a post on his blog yesterday, mentioned this problem, writing that, “It is hard to see how a government fund that has to choose to finance the overseas ambitions of some Chinese companies and not others could be insulated from domestic political pressure.”

Yet it is hard to see how any fund that answers only indirectly, if at all, to investors or (in the case of pension funds) members could ever be free of the threat of political manipulation, be it in the form of SRI or something more sinister, regardless of the path its investments take.

The Montana Board of Investment’s (MBI) March 2003 decision, made in a regular board meeting, to pull all its French investments is an example of a particularly sinister form of political investing or, in this case, divesting. I just looked up the minutes of that board meeting, and some of the best lines are worth sharing.

The MBI’s decision came after a pension fund member had moved “that the Board sell all French company stock and not purchase any more French stocks until such time as a future Board determines that France has proven it is a friend of the United States again.” The inspiration for the member’s move was apparently “a statement made by President Bush following the ‘9/11’ terrorists attacks that ‘you are either with us, or with the terrorists.’”

The board thereafter managed to convince itself that it would not be in breach of its fiduciary duties if it divested in France since (in the words of one board member), “[T]he backlash [against France] could be significant. The media has reported French goods not being purchased; French wines not being purchased, Evian water not being purchased. People are protesting against the French. There is a risk in holding French company stock.”

The decision to divest, which was reversed in October of that year, is reported to have cost the MBI’s members $4mn.

Looking at the Times article again, it is interesting, given the general focus in the media on the China Investment Corporation (CIC) as the face (quite literally) of Chinese sovereign wealth, that it focuses primarily on the State Administration of Foreign Exchange (SAFE) and refers to the CIC as the “smaller Chinese sovereign fund.”

UPDATE (June 22): Brad Setser has posted a response to the Times article.

Bloomberg reports that, “Brad Pitt, the star of ‘Fight Club’ and ‘Ocean’s 11’ who professes a passion for architecture, will be a design consultant for an 800-room hotel and resort Zabeel Properties plans to build in Dubai, the developer said.”

Here’s the press release.

As part of her Wake Up America agenda, unveiled last week and designed “to alert, and educate, Americans to terrorist threats here at home posed by radical Islamic extremists,” US Representative Sue Myrick is proposing “to call on the Government Accountability Office to conduct an audit to verify the total sovereign wealth fund investment in the United States.”

Let’s see if she manages to get any SWFs in a figure four leglock.

Here’s the video (YouTube) of the amusing Fox Business Apple/Abu Dhabi mixup the other day.

The FT Alphaville blog reports on Fox Business’s hapless reporting of last week’s AMD deal.