Perino Comments on Sovereign Wealth Funds

My colleague Michael Perino, who teaches and writes in the area of securities regulation, had the following comment regarding the sovereign wealth funds discussion in my earlier post:

One point of perspective worth keeping in mind is that shareholders (despite some of the claims in the article) are quite weak in the US. In large part that weakness flows from collective action problems and the unusually diffuse ownership structure of US corporations. While I suppose China or other countries have the wherewithal to buy companies outright and thereby exercise substantial control, this will create a significant political backlash (see CNOOC’s proposed purchase of Unocal just last year). Indeed, I think it is quite significant that China’s first big move was to invest in Blackstone (a hedge fund rather than an operating company). And, more significantly, when the deal was announced it was emphasized that China would have no voting rights or any influence over Blackstone’s decision making. To be sure, Blackstone will certainly not want to make a big investor unhappy, but I think China, at least for now, is for political purposes seeking to paint itself as merely a passive investor. I would also add that these investments come after decades of privatization deals. Governments have repeatedly shown that they are particularly inept business people. Now, of course, that may play second fiddle to broader political objectives and it is certainly possible that political leaders today will not have learned the lessons of the past, but it seems unlikely to me that governments are really looking to call the shots at private companies.