Abu Dhabi negotiating to buy Chrysler building

June 11, 2008

The latest high profile investment by a sovereign wealth fund (SWF) may be Abu Dhabi’s purchase of the Chrysler building here in New York.

This is making headlines because of the nature of the transaction. A landmark American building, being purchased by an Arab investment fund with $875 billion to spend. That cash accumulated via exports of oil.

But really, this deal isn’t a big one. $800 million for the 75% stake in the Chrysler building may grab headlines, but SWFs are announcing far larger investments regularly. For instance, Abu Dhabi also announced today that it plans $5 billion of additional investments this year, including a joint venture with a large U.S. utility. And yesterday, China’s State Administration of Foreign Exchange (SAFE for short) announced they are investing $2.5 billion with American private equity firm TPG.

So you see: SWFs are very busy, making a dozen headlines every day. With $3.3 trillion of assets under management at the end of 2007, they certainly have the financing to make those headlines. Check out this report for more details on SWF assets.

It’s worth noting that the $3.3 trillion figure DOESN’T include China’s SAFE, which technically isn’t considered a sovereign wealth fund. One expert thinks it should be now that it is investing more of its accumulated reserves.

Thinking about SAFE for a minute, it’s fascinating to ponder just how fast their assets are growing. I blogged about their stunning growth two days ago. They are accumulating $80 billion of fresh reserves every month. Their $2.5 billion investment in TPG represents only one day’s growth in assets.

All of the above is to be expected. As the United States continues to run a large trade deficit, and as low interest rates and a slowing economy make U.S. assets less attractive, U.S. dollars will flee to foreign locales.

Why is this significant?

At the end of the day, a dollar is a claim on U.S. goods or assets. While U.S. mutual funds and pension funds still control more assets than foreign central banks and SWFs, the latter are growing fast. Remember: he who owns the most dollars, owns America.

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