I had a post on sovereign wealth funds yesterday. Today Swaminathan Aiyar weighs in with an article in ET. Aiyar seems to think that large purchases of equity by emerging market sovereign funds could raise the spectre of a takeover of western firms by Asian governments.
Well, as long as the acquisitions are small and sovereign funds are passive investors, western governments will keep quiet. I doubt that foreign governments will be mute spectators if the funds want to run companies. Sovereign funds will be expected to play the role that FIIs do in India- voting with their purchases and sales and not attempting in any way to directly influence management.
Moreover, large acquisitions by sovereign funds will fuel demands for a reciprocal opening up of markets in developing countries and this in itself will put the brakes on such acquisitions. Lastly, the performance of the funds is also an issue. Can governments manage large equity positions to their benefit? Remains to be seen.
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