Copyright ©2008 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

RENEE MONTAGNE, host:

Over the last year, the falling dollar has made U.S. goods cheap. That's helped American businesses sell more overseas. At the same time, foreign governments are coming to the U.S. to snap up large chunks of commercial real estate and financial institutions.

In part two of our series on the weak dollar, we talk about what's known as sovereign wealth funds and why they're raising eyebrows.

We called Mona Sutphen to find out more. She's managing editor of the consulting firm Stonebridge International. Good morning.

Ms. MONA SUTPHEN (Managing Editor, Stonebridge International): Good morning.

MONTAGNE: Give us, please, a thumbnail description of what a sovereign wealth fund is.

Ms. SUTPHEN: Sure. A sovereign wealth fund is an investment fund that's controlled by a country rather than a company, and it uses national wealth. So that's reserves - it can be foreign currently or other reserves - as the investment capital that it uses.

MONTAGNE: Now, governments have been investing money overseas for decades. What's new about these sovereign wealth funds that is getting them so much attention now?

Ms. SUTPHEN: Well, what's getting them a lot of attention right now is the fact that the amount of money that these funds are managing has just exploded in the last, you know, year or so - at the same time that the U.S. economy, of course, is declining.

MONTAGNE: So what kinds of investments have these governments been making?

Ms. SUTPHEN: Well, a lot of it depends on the strategy of the country. So if you're in the Middle East and most of your money is related to energy, you're looking to diversify out of energy. And so you might be taking stakes in retail or banking or technology as a way to balance out the amount of - where you have your investments.

Some countries with excess reserves are just looking for a high return, wherever that may be. And so I think the reason banking has gotten a lot of attention is because it's - people see it as a somewhat sensitive sector that draws a lot of attention. And it's very high profile, the amounts of money that these funds are investing.

MONTAGNE: Well, could these funds be used as a political tool? You know, I think would an American be reasonable who owns stock in, say, Citibank to be concerned about the impact of having Abu Dhabi own 10 percent of the company?

Ms. SUTPHEN: Well, you know, at one level, it's natural to think, well, I wonder what's going on here. But for the most part, what we've seen is that these sovereign wealth funds are, in fact, long-term investors. I think the fear that you have out there is really about what might happen as opposed to what's actually happening today.

And some of that fear goes to the potential for them to create volatility, let's say if they decide to buy and sell stocks in companies and wreak havoc in our financial system and the like. That's, I think, where people are quite concerned.

MONTAGNE: How transparent are these funds? They're government funds. We're talking China, Russia, as well as the Middle East. Can they be investigated pretty easily by the average investor?

Ms. SUTPHEN: No. This gets to the heart of the issue. They're not very transparent. Some of them are more transparent than others, meaning that they publicly state what their investment objectives are and some broad categories how they're spending their money. I'd say a very small percentage actually do that kind of reporting, that level of transparency. Most of them, we have no idea what they're spending their money on.

MONTAGNE: Do you think all of them are only motivated by profit and not at all a desire to have any sort of political influence over the particular companies, or even in some sense the U.S.?

Ms. SUTPHEN: Well, I think it's hard to say what their motivations are, because they have not been particularly transparent. I think their investment activity thus far has shown that they are interested in superior returns. They're interested in making money. I see it as a vote of confidence for the U.S. economy that they feel the long-term prospects for the United States are positive.

MONTAGNE: Thank you very much for talking with us.

Ms. SUTPHEN: Sure. Thank you for having me.

MONTAGNE: Mona Sutphen is co-author of "The Next American Century: How the U.S. Can Thrive as Other Powers Rise." You can read more about sovereign wealth funds at npr.org.

Copyright © 2008 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.