Sovereign wealth funds are set to accelerate investment in stricken banks, despite billions being wiped off the stakes they have amassed in the US and UK since the credit crunch.
A leading Emirates financier, who runs one of the biggest funds in the Gulf, said on Thursday that his investment stakes have been taken strategically, "with a 25-year view in mind".
"The market turmoil will not dissuade us from making further investments – quite the opposite, in fact," added the source.
Michael Burns, chief executive of the Alaska Permanent Reserve, which is the world's 10th biggest sovereign fund, said that the investments in his $40bn (£20bn) fund were down 3 per cent since 1 July, the start of its financial year. This has wiped out earlier estimates that the fund would be worth at least $42bn by year end. But Mr Burns added that he still hoped Alaska would break even: "We think right now that we'll end up about flat at $39bn-$40bn, but things are pretty erratic."
A source close to another Gulf fund said while there were short-term hits because of the crashing stock market prices, the swath of stakes that had been purchased over the past few months would still represent historically low prices.
Temasek, one of the Singapore government's two sovereign funds, with more than $100bn of assets, has seen about $150m wiped off the $4.4bn stake it took in Merrill Lynch at a discount in December following the collapse in Merrill's shares. On Thursday last week, the US bank's shares closed at $46.85.
In January, Merrill Lynch placed $6.6bn in convertibles with investors. The three main parties were the Government of Singapore Investment Corporation (GIC), the Korea Investment Corporation and Japan's Mizuho Financial Group. The investors need the share price to reach $52.40 when they mature in 2010 to be worth the purchase price. At the moment the price equates to a $700m loss.
In the UK, Temasek took a £1bn stake in Barclays last July, giving it 2 per cent of the bank. Shares have since tumbled from 735p to 429p. The GIC also took a 9 per cent stake in UBS in December for $9.75bn. But UBS, which has disclosed huge writedowns and big problems in its fixed-income division, saw its share price nearly halve to $28.51 on Thursday.
The rising profile of sovereign investment funds, widely seen as secretive in their operations, has led the US Treasury, International Monetary Fund and European Union to push for a code of practice. Singapore and Abu Dhabi agreed to the code's basic principles last week.Reuse content