FT.com / Companies / Europe - State players

FT.com / Companies / Europe - State players

State players
By Paul Betts

Published: September 12 2007 03:00 | Last updated: September 12 2007 03:00

Germany's Angela Merkel and France's Nicolas Sarkozy got together again this week to renew their concerns over the current hidden risks in the financial markets.

They are lobbying other leading industrialised countries for the establishment of new rules to increase the transparency of financial markets, especially the new breed of investors such as hedge funds and private equity.

The German chancellor is also very worried by the emergence of government investment institutions: so-called sovereign funds. Oil-rich countries, and others such as Singapore and China, are increasingly taking the profits from their fast-developing economies and putting them to work in the markets.

The Abu Dhabi Investment Authority alone has some $875bn of international assets in its portfolio while Norway with its $300bn sovereign fund has emerged as the second-largest investor in France's CAC40 index of blue-chip companies.

Ms Merkel worries that such governments could become, if they are not already, significant owners of German wealth- providing companies. She may have a point.

Although these sovereign funds have so far been fairly passive investors - their purpose being to diversify and increase their nation's oil wealth - there is always the risk that they may at some stage adopt a more activist approach. Then the question will be whether their activism will be in the interest of wider shareholder value or used to advance their own specific geopolitical and economic goals.

That said, at least in the case of Norway, it seems the interest of the Scandinavian country lies primarily in long-term value creation. The pressing need is to finance the state pension fund commitments to an ageing population.

This should be encouraging for the markets, especially in their current febrile state. But equally it should not be an excuse to bury the need for improved disclosure from these fast-growing sovereign investment funds and other market players.

Copyright The Financial Times Limited 2007