Asia urged to 'welcome' SWF cash

03/05/2013 | Anthony Rowley

Sovereign wealth funds must be encouraged to invest in emerging markets, to make up for the drought of long-term investment

The ADB and other multilateral development banks need to “catalyze” money from sovereign wealth funds (SWFs) in order to tap into a rich seam of wealth that could help close the threatened funding gap for infrastructure and other long-term projects, a private equity specialist said.

Assets of the world’s half dozen or so major SWFs have now grown to a massive $4.6 trillion and this will soon exceed $5 trillion, according to Arvind Mathur, former head of capital markets in the ADB’s private sector department and now head of his own Indian private equity firm.

These are potentially “huge flows” of equity and other types of investment that can be channelled into long-term investment to help close the infrastructure funding gap in emerging economies, Mathur told Emerging Markets.

But the environment in these econ-omies has to be made more “friendly” in terms of public and corporate governance before such multi-billion dollar flows can begin in earnest, said Mathur, who is chairman of Gurgaon-based Private Equity Pro Partners.

He challenged the view commonly held among multilateral financial institutions that the world faces a potential drought of long-term finance for infrastructure and other projects. The money is there and “the funds will flow” if the environment is right, he argued.

In an interview with Emerging Markets, the ADB’s new president, Takehiko Nakao, drew attention to the need for the Manila-based development bank to catalyze funds from private sources to supplement its own resources if the bank is to maintain annual lending levels of around $10 billion.

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SWFs are now growing in a number of countries, Mathur pointed out, citing as examples those in China, Norway, Abu Dhabi, Azerbaijan and Singapore.

“The long-term capital available to them is going to increase significantly. Emerging markets have to find a way to welcome these SWFs and so long as they feel that their capital is safe in term of political risk they will invest,” Mathur said.

“I think this could be a significant source of new flows of capital in the world that has not existed to the same extent in the past 20 to 30 years. It’s not influenced by interest rates but it can be adversely affected by host country policies and attitudes.”

The Abu Dhabi Investment Authority (Adia) for one is interested in investing in India, said Mathur.

“They sent several delegations to India saying ‘we are interested in investing in your country,’ and Warren Buffett came to India and also said he wants to invest here. So, there is interest but for the flows to happen the environment has to get better.”

Within the next few decades, Azerbaijan will have significant growth of its SWF due to successful production from its Caspian Sea reserves, while Mozambique will have cumulative gas revenues of several billion dollars beginning in 2018 due to gas finds by US and Indian explorers in the offshore Rovuma basin, he added.

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Tagged as: Asia sovereign wealth funds investing in emerging markets long-term investment ADB

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