EU's Mandelson, Airbus's Enders See `Savior' in Sovereign Funds

By Dune Lawrence

Sept. 27 (Bloomberg) -- Sovereign wealth funds will become major sources of funding for Western companies as financial markets reel, said European Union Trade Commissioner Peter Mandelson and Airbus SAS Chief Executive Officer Tom Enders.

Companies will ``lack a lot of money for years to come'' because of the financial crisis in the U.S. and Europe and will push their governments to be more open to foreign investments, Enders said at a World Economic Forum meeting in Tianjin, China. Mandelson called for regulation to encourage the investments.

Europe's top trade official has used a four-day visit to China to add his voice to calls for the Asian nation and other fast-growing emerging economies to ``take up the slack'' in the global economy, as the U.S. government works out a $700 billion plan to bail out its banks and keep credit markets functioning,

``The sovereign wealth funds in the present context might better be termed savior wealth funds,'' Mandelson said today. ``We need to find sensible ways and a proper basis on which sovereign wealth is able to deploy and use its resources to inject much-needed liquidity into the financial system.''

Countries including China, Russia and Kuwait have set up funds to seek better returns on cash reserves by investing in equities and other assets abroad. The rising pool of money has sparked concern among some lawmakers in Europe and the U.S. that the funds may be used to gain control over strategic industries.

``You see already major companies, European, American, touring those countries that have the funds because they foresee the need for funding, and these companies will also try to persuade governments'' to be more open, Enders said. ``One of the big changes we're going to see is the acceptance of sovereign wealth funds.''

Rising Investments

Sovereign wealth funds, which own about $3 trillion in assets, may almost triple their investments in the next five years as oil and gas prices surge, State Street Corp. estimated in July. Estimates of sovereign funds' asset growth are ``conservatively'' placed at 17 percent a year, said State Street, the world's biggest money manager for institutions.

They currently make up about 2 percent of the world's stock and bond markets, S. Dhanabalan, chairman of the Singapore state- owned investment company Temasek Holdings Pte said in August.

Sovereign wealth funds including Temasek, Kuwait Investment Authority and China Investment Corp. have already helped banks replenish $200 billion of capital after losses and writedowns from the U.S. subprime meltdown.

Both Mandelson and Enders said clear regulation is necessary to smooth the way for greater acceptance of sovereign funds. Mandelson in June suggested the funds could ease political resistance to their investments by signing a code of conduct that they seek only profit, not control of industries.

To contact the reporter on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net