Out of the news last week was a subject that was barely discussed given everything that has been going on in the markets, the creation of yet another Sovereign Wealth Fund, this time by the French government.  Its main goals are of course to increase its value but also to “stabilise the capital of French businesses”. It will start off with 20 billion Euros, not bad for a new fund.

This tendancy has became very popular in recent years as more and more countries have created funds that do look for returns but are also set to look out for the national companies. The mainstream media has been mainly discussing the funds based in the middle east because they perhaps make better stories to tell and certainly bring a lot more controversy. But still, the creation and growth of these funds brings up a lot of questions about how much power we are giving these governments.

If globalization has so many benefits, why do governments feel like they need such entities to protect their national treasures? It is ironic that the same governments that are always discussing the importance of the free markets are also creating such funds, that are basically built to help the government stage interventions when it does not like what the free market is bringing (“protect strategic French assets from predatory foreign investors”).

And to all of those who say that at least the US government is not setting up such, it might be true on a federal level, but many states such as Alaska are slowly building up such funds. Sure, national pension funds have been around for ages but except for a few exceptions, they were managed in a very similar way to private funds, basically looking for return and trying to manage future outpayments. But these “Sovereign funds” generally have missions that are outside of risk/returns and more lied to restoring or maintaining national pride or seeking national objectives.

And let’s not forget that it is very far from clear that such funds comply with national free trade treaties as when foreign companies try to merge or make hostile bids, counter offers by national funds are often on a grey line legal-wise.  Not surprisingly, the EU has expressed concern over this news. “What is important is that we avoid any kind of protectionism. It would be bad for the country that resorts to it and for Europe as a whole,” Barroso said when asked what he thought about the idea of European sovereign wealth funds. “We are not against nationalising or acquiring a stake in a company but we must bear in mind that competition rules must be respected,” Barroso said. “If each member state were to take protective measures, that could create problems in its neighbours and endanger the single market by fragmenting it,” he added.

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