[R-G] Sovereign Funds Cut Exposure to Weak Dollar

[Yoshie Furuhashi]

Wow, America is really going bankrupt.  Not only can we not afford
Iran, we can't afford even Afghanistan, let alone Iraq.  What are the
American ruling class thinking?  I'm afraid they may be thinking of
applying the strategy pioneered by the executives of the US steel,
airline, and auto industries to the whole of working-class America
from sea to shining sea: "Employers in heavily unionized U.S.
industries are turning to bankruptcy courts as a strategy for gutting
union contracts and imposing layoffs and givebacks even deeper than
those workers made in the concessions of the early 1980s" (Chris
Kutalik, "The Bankruptcy Bomb: Companies Use Bankruptcy Threats and
Courts to Force Bigger Givebacks, Break Unions ,"
<http://mrzine.monthlyreview.org/kutalik251005.html>).  -- Yoshie

<http://www.ft.com/cms/s/0/fc250ac2-5361-11dd-8dd2-000077b07658.html>
Sovereign funds cut exposure to weak dollar

By Henny Sender in New York

Published: July 16 2008 22:35 | Last updated: July 16 2008 23:24

Some of the world's largest sovereign wealth funds are seeking to
scale back their exposure to the US dollar in a sign of global concern
about the currency.

One big sovereign fund in the Gulf has cut its dollar-denominated
holdings from more than 80 per cent a year ago to less than 60 per
cent, while China's State Administration of Foreign Exchange (SAFE)
has been looking to strike deals with private equity firms in Europe
as a part of a strategy to reduce its dollar holdings.
EDITOR'S CHOICE
In depth: Sovereign wealth funds - Nov-04
Comment: The west cannot afford to spurn sovereign wealth funds - Jun-19
Chinese fund tries to calm west's fears - Jun-03
EU and US declare openness to investors - May-14
Gideon Rachman: Do not panic over foreign wealth - Apr-28
Moscow to shift SWF's investment focus - Apr-28

Sovereign wealth funds have played a leading role in helping to
recapitalise faltering US banks, but have lost money so far on such
investments. Continuing market turbulence has further shaken their
faith in US policy and policymakers.

Kenneth Shen, head of the strategic and private equity group at Qatar
Investment Authority, another Middle Eastern fund looking to do more
deals in Europe than the US, aired such concerns publicly at a
conference in Hong Kong late last year. "The outlook for the US dollar
is a significant issue for investors contemplating US-related
investments," Mr Shen said.

The shift at China's SAFE is significant because it holds the majority
of the country's $1,600bn in foreign currency reserves in dollar
instruments and has lagged behind other governments, such as
Singapore, in diversifying its currency exposure. SAFE has been
holding talks with Europe-based private equity firms about putting
billions of dollars into their latest funds, precisely because these
funds are not dollar-denominated, say people familiar with the matter.

By allocating money to Europe-based private equity firms, SAFE could
diversify away from the dollar, at least at the margin, without
spooking the currency markets and driving the dollar down in a
disorderly manner.

In addition, SAFE is encouraging the private equity firms with which
it has relationships to make investments in natural resources
companies in markets outside the US – in part, to hedge its exposure
to the dollar.

A spokesman for SAFE declined to comment.

Behind the scenes, fund officials are questioning the credibility of
the Federal Reserve and US Treasury in defending the dollar and
maintaining financial stability. Reacting to last year's collapse of
structured investment vehicles, the head of one Middle East fund said:
"I thought the problem of off-balance sheet had gone away with Enron."

Kuwait last year ended its currency link to the dollar, raising
questions about whether other oil-rich Gulf states with similar
arrangements would follow.

The largest of the sovereign wealth funds, the Abu Dhabi Investment
Authority, is still committed to the dollar. ADIA's subsidiaries make
their investments without taking into account currency risks. A
separate ADIA division then decides whether to hedge or not.

As long as the United Arab Emirates – which includes Abu Dhabi – pegs
its currency to the dollar, a major departure from the current
investment policy is unlikely. Moreover, ADIA staff say they worry
that the euro may be at a peak against the dollar.

Still, dissatisfaction with the dollar peg is growing at the Abu Dhabi
fund. "We are suffering. We are importing inflation for no reason,"
says one ADIA staffer.

Additional reporting by Geoff Dyer in Beijing