Big overseas government investment funds from Kuwait, Singapore, Qatar and Abu Dhabi “that came to the rescue of (our) banks during the financial crisis are going home with their pockets full of bounty,” according to The New York Times Business section, December 7, 2009.
These foreign government funds, known as sovereign wealth funds, were the subject of a recent talk at Makovsky by Dr. Efraim Chalamish, an international investment law scholar and Global Fellow
at New York University who spoke to our staff on perception and communications issues surrounding sovereign wealth funds
investing in the U.S. Since many do not know a great deal about these funds, I did a quick interview with Dr. Chalamish following the talk. Here are some of the highlights of our conversation.
Define sovereign funds.
The terminology around sovereign funds is still a work in progress. The definition recently adopted by the International Monetary Fund
and the sovereign wealth funds community includes three fundamental elements: ownership of the fund by the foreign government, an investment strategy that includes foreign financial assets and investing the funds to achieve key financial goals in the mid-to-long term.
How would you describe the perception barrier to foreign investment in the United States?
In general, the U.S. offers its foreign investors a relatively open regime for foreign investment, and therefore the U.S. receives a steady stream and a high level of foreign investment. However, various regulatory aspects of investment law are frequently used by U.S. politicians to promote political goals and serve as drivers for legislative changes. Since clarity and consistency are very important factors for foreign investors, the U.S. has to make sure that it communicates rapidly any such changes in investment law.
What are the top three things that sovereign wealth funds should consider when contemplating a business investment today in the U.S. and how should they approach the communications challenges here and in their own countries?
Overall, communications via the media can play an important role in the investment process by positioning the deal in the U.S. as furthering the strategic interests of both sides, improving cross border economic activity and creating jobs. Moreover, common economic interests can make allies out of enemies.
Beyond communications, here are three important points to consider:
First, the funds need to contemplate potential regulatory challenges to the investment. A significant investment in a strategic industry will lead to a governmental review that may delay the process. For example, the review may include measures such as limitations on the nationality of board members or a requirement to spin off certain company divisions -- all related to the level of control of the acquired company.
Second, since many of these funds will want to continue to invest in the U.S. in the future, the process must be a positive experience. This underscores the need to work closely with the U.S. government, building mutual trust and emphasizing the benefits to all parties.
Third, foreign governments need to communicate to their nationals the importance of long-term financial planning in order to achieve higher returns. This is especially important in countries that have traditionally invested their currency reserves in local assets and now might view jurisdictions, such as the U.S., as risky, particularly due to the recent financial crisis.
As a foreign investor, is it more important to manage perceptions in the government community or with the general public? Why?
In the case of foreign investment, it is important to manage perceptions in both communities. The Committee on Foreign Investment in the United States
, a government body, can approve an investment or impose certain limitations on it. At the same time, it is also important for the general public to have a positive perception. As we learned from the Dubai Ports World story
, negative emotions among the general public, driven by protectionist sentiments and local nationalist voices, can induce politicians to reject an investment which would otherwise have been approved.
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