Sovereign Funds to Stabilize Bourses'

Sovereign Funds to Stabilize Bourses'

By Park Hyong-ki
Staff Reporter

Investments in stocks by sovereign wealth funds will stabilize stock markets rather than increase volatility, said an executive of the U.S. Securities and Exchange Commission (SEC).

``My view is that sovereign wealth funds tend to be long-term investment as opposed to hedge funds. I would think that other sovereign wealth funds invested in Korea tend to be well stabilized,'' said Robert Pozen, chairman of the SEC advisory committee on improvements to financial reporting.

Speaking at a seminar on sovereign wealth funds hosted by the Institute for Global Economics Tuesday, Pozen said the funds are unlikely to buy and sell assets quickly as such a move imposes high transaction costs.

He advised the Korean government to ``invest prudently'' in stocks when utilizing its fund, instead of taking aggressive or conservative approaches.

Pozen, who is concurrently chairman of Massachusetts-based MFS Investment Management, added that the best management of such funds is through portfolio diversification, ranging from stocks and bonds to real estate and alternative products.

He projects sovereign wealth funds worldwide to reach $11 trillion by 2015, accounting for roughly 10 percent of global stock markets. Last year, funds totaled at $2.5 trillion.

Pozen also believes stock markets will contract as seen in the last five years as stocks have shrunk amid increasing share buybacks and mergers and acquisitions. But he noted, ``Stocks are better than bonds in the long-term.''

Sovereign wealth funds in Asia and the Middle East have been drawing keen attention from Western economies as they have bailed out a number of financial firms in the U.S. troubled by subprime mortgage defaults.

Notably, the funds deriving from growing oil sales and foreign reserves on trade surpluses in the United Arab Emirates, Singapore, China and Korea have injected liquidity into companies such as Citi, Merrill Lynch and Morgan Stanley.

Despite such rescue efforts, the public and policymakers in the U.S. and Europe have been highly critical of sovereign wealth funds, citing national security concerns and calling for more transparency.

However, Pozen said people often falsely believe sovereign wealth funds are dominating strategic industries, including security-related businesses, and trading on inside information. In fact, no evidence has been found regarding inside trading, and U.S. rules limit foreign ownership of critical businesses such as aviation, banking and communications.

``They don't want to be national champions. They want to invest for returns,'' he said.

He added funds have not only bailed out many financial firms, but also have supported stock prices.

Regarding transparency, he noted that it is a tough issue as to how much more disclosure is needed under current regulations.

phk@koreatimes.co.kr