Monday, December 10, 2007

Sovereign wealth funds get busy

UBS (50.48) writes down $10 billion in subrime losses, and announces an investment of $9.5 billion into the bank by the Government of Singapore, and $2 billion from an undisclosed "Middle Eastern" investor.

The Daily Telegraph said that China's sovereign wealth fund is teaming up with Blackrock to buy Rio Tinto, a deal that would be in excess of $150 billion dollars.

A few weeks back Goldman Sachs said that the banks sub-prime investment losses could contract lending by $2 trillion dollars. It looks to me like the banks only need to make a phone call to get the capital they need. And sovereign wealth funds, are interested in picking up stocks, while in the U.S. the state run funds have the lowest exposure to US equities in years.

I suppose that makes sense. They put SIV's in the state run pools, to increase returns by a tenth of a percentage point, and those SIV assets are all underwater. So they change their allocation to US equities, because, the reasoning would be, if the SIV's blow up, what will happen to stocks?

Excuse my sarcasm, but I wonder who's on the other side of the phone advising these guys?

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