Prioritizing Investment Portfolios Beyond the Global Downturn – Multinationals and SWFs Surpass the “Withdraw And Regroup” Phase and Consider the Post-crisis Geo-economic Horizon
In Reuter's Interview, Krull Corporation's Alexander Mirtchev Discusses the Growing Trend of Sovereign Wealth Funds Cooperating in the Wake of the Global Economic Crisis
WASHINGTON, Aug. 26 /PRNewswire/ -- International economist Dr. Alexander Mirtchev, president and founder of the global strategic solutions provider Krull Corporation, considers sovereign wealth funds to be a potent, but "less visible" factor for growth in the world economy. In an interview with Reuters, Mirtchev analyzed the growing number of sovereign wealth fund alliances that have become more and more prevalent, expressing the view that such cooperation would ultimately benefit the regions where such "alliances" operate, as well as the funds themselves.
Sovereign wealth funds (SWFs), the national investment vehicles that governments worldwide use as a direct investment instrument, as well as to build financial portfolios for savings and income, got back on track in August. "Sovereign wealth funds have already moved beyond the 'withdraw and regroup' stage brought about by the crisis, not to mention the time of the 'glamour investment' that is now over, as they face the need to prioritize their portfolios and focus on new areas of growth, which underlies the rationale for joining forces on an ad hoc basis," according to Dr. Mirtchev.
Collectively, sovereign wealth funds have $3 trillion to bankroll their investments. "From the times when kings invested in building pyramids, raising armies and bankrolling explorers, sovereign wealth attracted political controversy. But sovereigns have changed with the times, and today represent internationally legitimate public authorities," indicated Dr. Mirtchev.
"Sovereign wealth funds from different nations around the world are forming partnerships, a practice rarely observed before the 2008-09 economic recession," Dr. Mirtchev said. He considers that "the new collaboration and alliances by sovereign wealth funds imply that international investment advisers, typically from tightly regulated markets, see advantages in bringing a number of funds together for a transaction.
"The primary advantage is spreading the risk while increasing potential profits. As long-term investments, sovereign wealth funds have the potential to stabilize companies they invest in since these funds do not live by quarterly returns," he added. "By combining with others that may have access to better investment tools, funds can offset certain limitations or inefficiencies of specific projects, enabling access to welcome co-financing, another major consideration."
Dr. Mirtchev says that another benefit is transparency. "The immediate consequence of this collaboration is that at least several parties to the transaction have to open their books to each other, to negotiate agreements that all parties are comfortable with and to increase the level of overall transparency in the investment of a nation's sovereign wealth. Every time one fund manager reaches out to his peers, the market gets a bit more information about international finances, and regulators are immediately aware of the intent of the deal."
"Cooperation among sovereign wealth funds and their managers on different projects represent a sign of their maturity as investors who have become more aware of the market opportunities. On certain occasions, it could help funds to become market leaders in specific sectors," commented Dr. Mirtchev. "Crucially, in the crisis and post-crisis environment, such cooperation allows them to achieve a new level of legitimacy in markets where they have not invested before. Additionally, this would also allow SWFs to introduce elements of comparatively independent supplementary financing mechanisms in their transactions, a phenomenon that could actually evolve into an additional layer of the global financial system."
"In this still weak economic environment, sovereign wealth funds collaborating on investments in struggling sectors would provide an added boost to global economic growth, making them a strong, if unacknowledged, force in the recovery."
Read the entire Reuters article.
Dr. Alexander Mirtchev is the founder and president of Krull Corporation, a Washington, D.C.-based global strategic solutions provider, focused on economic growth and modernization. He has served as chairman and member of the board of multibillion dollar organizations and has had a distinguished academic career.