Sovereign wealth funds strike again

Morgan Stanley becomes the latest financial firm to score an investment from the new power players in global finance.

Subscribe to Markets
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Ellis and Grace Wong, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- Wall Street bank Morgan Stanley said Wednesday it received a $5 billion injection from China's state-run investment arm, becoming the latest financial firm to look overseas for cash.

Morgan Stanley (MS, Fortune 500), addled by bad bets on risky home loans, joins the ranks of Citigroup, UBS and Bear Stearns, which all have received infusions from foreign players in recent months.

Sovereign wealth funds, which act as a country's investment arm, have long been investing money gained through exports or from the sale of commodities such as oil. But the credit crisis, which has left several financial strapped for cash, has created even more opportunities for these funds.

The investment by China Investment Corp., which took a stake in private equity titan Blackstone Group (BX) in May, comes on the heels of the $7.5 billion cash infusion Citigroup (C, Fortune 500) received from Abu Dhabi's state investment fund last month.

Earlier this month, Swiss bank UBS (UBS) said it received an $11.5 billion investment from Singapore's investment arm and an investor in the Middle East. In October, Bear Stearns Co. (BSC, Fortune 500) and Chinese investment bank Citic Securities Co. said they would each invest $1 billion in the other.

Morgan Stanley said China's sovereign wealth fund would take a less than 10 percent stake in the company, and that the investment would bolster the firm's capital position and growth opportunities abroad.

"We are delighted to welcome CIC as a long-term investor in Morgan Stanley, and believe it is an important step in increasing the flow of capital between our countries and across these increasingly critical markets," Morgan CEO John Mack said in a statement.

Located both in the oil-rich Middle East, as well as other nations such as Russia and Singapore, sovereign wealth funds are expected to wield even more might in the coming years. Combined assets under management are expected in the next three years to quadruple to $7.9 trillion from $1.9 trillion, according to Merrill Lynch.

While government debt like U.S. Treasuries have long been their investment vehicle of choice, the funds' appetites have grown more complex as they have searched for greater returns, said Jay Bryson, global economist at Wachovia Corp.

"There are only so many Treasury securities or government bonds out there they can buy, so they are looking to diversify," said Bryson.

Economists argue that investments by sovereign funds are important to the U.S. economy, providing capital to firms and supporting the dollar. At the same time, the funds have have faced plenty of criticism.

World leaders have worried that the funds may try to wield their investments as a diplomatic tool and called for greater transparency about investments.

Lawmakers in Washington have been equally cautious, despite a recent push by both the White House and some members of Congress to court foreign investors after last year's widely-publicized failure of Dubai Ports World to manage six U.S. ports.

Going forward, sovereign wealth funds will most likely try to avoid scrutiny altogether by acquiring small stakes and forgoing management control, said Edwin Truman, senior fellow at the Peterson Institute for International Economics.

"Sovereign wealth funds have learned from their experiences," said Truman.

This is an updated version of a story that ran on CNNMoney.com on Nov. 27. To top of page

Photo Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.