View of the State Administration of Foreign Exchange (Safe) in Beijing (AP).

China’s Buying into TPG Raises Investors’ Eyebrows

June 12, 2008 09:53 AM
by Anne Szustek
China’s State Administration of Foreign Exchange (Safe) has committed to a $2.5 billion stake in the Texas-based private equity fund, kindling fears over political transparency.

30-Second Summary

Financial Times writes that people close to the deal said it “could be the largest commitment ever made to a private equity firm.

Generally, investments made into private equity funds are kept that way: private. But both the size of the investment and the fact that Safe is one of China’s sovereign wealth funds drew attention to the agreement.

Thomson Financial’s Glenn Curtis defines sovereign wealth funds as “foreign government investment vehicles” that “have made headlines recently because of their cash hordes. They are now beginning to diversify out of low yielding bonds and into other assets for greater returns.”

The world’s six largest holders of sovereign wealth funds, China being among them, have significant oil deposits, and use the investment tool to help tide the economy over in case of resource depletion or negative shocks to commodities prices.

Currently, an estimated $2 trillion to $3 trillion is invested in sovereign wealth funds. Over the next five years this amount is expected to increase to some $6 trillion to $10 trillion.

The increasing value of sovereign wealth funds has opened debate as to their transparency, as well as how they wield national treasuries into players on the international financial markets. Some countries in which sovereign wealth funds often invest are showing skepticism as to their political motives.

The widely diversified portfolios of private equity firms like TPG—which has stakes in media, banking and airlines—could help to lessen scrutiny imposed on sovereign wealth fund investments.

Headline Link: ‘China’s Safe to Invest $2.5bn in TPG Fund’

Video: ‘Corporate Advisory Insight: Sovereign Wealth Funds’

Background: Sovereign wealth funds

Reference: FindingDulcinea’s Web Guide to Investing

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