By Joel Bowman
Billionaire US investor blames US trade policy for epic rise of sovereign investment funds.
Billionaire US investor Warren Buffett has blamed his government’s trade policy for the rise of sovereign wealth funds (SWF), rebuking critics fearful that such funds are driven by political rather than financial motives.
“This is our doing, not some nefarious plot by foreign governments,” Buffett said in his recently published annual newsletter to shareholders of Berkshire Hathaway, his multibillion dollar company.
“Our trade equation guarantees massive foreign investment in the US,” he said. “When we force-feed $2 billion daily to the rest of the world, they must invest in something here."
The rise of SWFs has been the source of much debate in financial circles as politicians and economists grapple with the argument that sale of US companies to foreign, government-owned investors may undermine national security in the world’s largest economy.
SWFs, now believed to be in worth an estimated $2.9 trillion, have swooped on US lending institutions embroiled in the fallout of the subprime mortgage crisis and ensuing credit crunch.
Over the past four months, funds from Kuwait, Abu Dhabi, Singapore and South Korea have bought stakes in Citigroup, the largest US bank by assets, and Merrill Lynch, the world's biggest brokerage firm.
In January, US president George W. Bush signed an executive order to tighten controls over the inflow of foreign direct investment (FDI).
The order was to implement a law passed by the US Congress in October last year that requires a more stringent, second review phase before foreign investment can be made in areas deemed sensitive to US national security such as energy and critical infrastructure.
Buffett, sometimes referred to as the “Oracle of Omaha” for his investing prowess, warned that such hostility from the US toward foreign investment could backfire, leading to resentment from the international investing community.
“Why should we complain when they choose stocks over bonds?” Buffett said, referring to the recent flurry of investment activity by SWFs.
“Our country’s weakening currency is not the fault of Opec, China, etc,” he said. “In defending a sensible trade policy, the US should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behaviour.”