ventures. The Chinese Investment Corporation has contributed to a major fund established by JC Flowers. The Government Investment Corporation of Singapore has emerged as a key underwriter of a similar fund established by Texas Pacific Group. Investment in distressed financial stocks and the leveraged acquisition of committed senior debt at fire-sale prices provides both sets of institutional actors with a clear commercial opportunity. It is a thought that is captivating private equity mandarins. The Abu Dhabi Investment Authority will, in time, ‘effectively replace Wall Street’, a c c o r d i n g t o G u y H a n d s , t h e h e a d o f T e r r a F i r m a , a l e a d i n g p r i v a t e e q u i t y p r o v i d e 44 r Although tinged with hyperbole, it is indicative of growing interdependence.45 . The
linkage magnifies, however, the opacity problems associated with the acquisition and divestiture of portfolio companies. If the aim of policymakers is to limit the short- term nature of contemporary market practice, it is surely counter-productive to force an arranged marriage between two largely unregulated sectors of the financial economy.
B The Exercise of Soft Power
Sovereign Wealth Funds represent a fundamental shift in market dynamics precisely because of the (potential) fusion of political and commercial imperatives. Their growth provides confirming evidence that the claim that the triumph of liberalism and global diffusion of western economic policies would inevitably lead to the demise of the state is, at best, premature.46 For the larger established funds there is no evidence that investment strategies differ in substance from those of traditional pension funds. Indeed it is arguable that any short-term attempt to destabilise the market would be exceptionally counter-productive to longer-term interests precisely because the initial exit could be easily traced. The boom in commodity prices, in particular, however, compounds the perception that investment strategies could be used to advance the potential exercise of political ‘soft power’.47 A number of plausible concerns arise in this regard. Corporate takeovers and the acquisition of strategic stakes (particularly if accompanied by board rights) give state actors potential access to proprietary intellectual capital. Without appropriate and enforceable checks and balances, misuse of this information could be disseminated to a wider range of ‘national champions’. A related risk is that the investment could influence strategic imperatives (for example by skewing lending priorities towards projects favoured by donor countries) thus undermining the efficacy of specific corporate governance controls. 48
The more aggressive investment strategies developed by China and Russia, in particular, but also from authoritarian governments in the Gulf, have exacerbated these concerns. While there is no evidence that any Sovereign Wealth Fund has ever been used to further political ambitions, ascertaining the motives of secretive or authoritarian governments is a notoriously imprecise exercise. Notwithstanding the
44 M Arnold, ‘Wealth Funds Fill Bank Gap for Buy-Out Groups’, Financial Times (London), 28 February 2008, 1.
45 The involvement of a Texas Pacific Group founding partner on the international advisory panel set up by the Singaporean SWF, Temesek Holdings, indicates this. The governance procedures allows for Bonderman (or any other advisor) to be excused from deliberations in cases where a conflict of interest exists; see Israel, above n 31.
For original formulation, see F Fukuyama, The End of History and the Last Man (1992). See J Nye, Soft Power: The Means to Success in World Politics (2005). Allen and Caruana, above n 28 at 14.