Global Investing

The Vale Columbia Center on Sustainable International Investment’s latest report on foreign direct investment looks at inward flows to Germany.  Things look like they were a bit better last year than the year before, apparently.

But buried in the report from Aschaffenburg University economist Thomas Jost is some interesting data regarding  sovereign wealth funds.

In April last year, Germany responded to concerns about the influence of sovereign wealth funds by introducing rules allowing for a review of planned acquisitions by non-EU/EFTA foreign companies and SWFs of existing German companies.

According to the Federal Ministry of Economics and Technology, pace Jost, between the introduction of the rules and May this year, 34 companies applied for so-called certificated of non-objection. All got their approval within an average of two weeks and none were referred for a special  review.

So on the face of it, the law has not stopped inward FDI into Germany, but there are questions that need to be answered. How many of the 34 applicants were sovereign wealth funds? How much have the rules put SWFs and other companies off?  As Jost puts it:

Sovereign wealth funds, facing criticism from Western regulators and politicians for their opaqueness, are keen to open up their books.

While Norway is a leader in the SWF league of transparency, other countries like China have started publishing annual reports.

But is transparency all good for SWFs?

Gary Smith, head of  central banks, supranational institutions and sovereign wealth funds at BNP Paribas Investment Partners, says the pressure to open up has raised unseen consequences of having to face domestic pressures.

Sovereign wealth funds are increasingly working in concert to make joint strategic investments.

China, Singapore, Malaysia, Korea, Abu Dhabi and Kuwait are among those which have recently formed investment partnerships with each other.

Why are they doing this? First of all, by linking up capital and resouces, SWFs can leverage up, optimise local knowledge, spread risks and maximise returns.