Over the past few years, the enormous dollar holdings accumulated by foreign wealth funds represents a major threat to American ownership of United States corporations and real estate. My definition of a sovereign wealth fund is a fund owned by a foreign country that can purchase stocks, property or bonds of other countries.

Sovereign Wealth Funds are already large—worth between $1.5 trillion and $2.5 trillion according to estimates the America’s treasury department. —and will swell larger as governments switch a bigger share of their reserves from low-yielding assets like Treasury bonds to more adventurous investments. Morgan Stanley predicts that by 2015 sovereign-wealth funds could be managing $12 trillion.

Politicians in Europe and the United States have woken up to the dangers of this trend. Peter Peterson, the former Secretary of the Treasury and the former Chairman of Blackstone Group, warned about the problem in his book, Running on Empty. Peterson highlighted the implications of a continued large trade and budget deficit by the United States with this analogy. Peterson said the difference between being a creditor and a debtor is as significant as the difference between being a plantation owner and a share cropper. Warren Buffet, the Chairman of Berkshire Hathaway has articulated his fear about the relative value of the United States dollar. His company, henceforth, will reallocate a significant percentage of their assets overseas and into foreign currencies. Angela Merkel, Germany’s chancellor, recently argued that the European Union needs new rules to regulate what the funds may buy.

Most of the assets generated by sovereign-wealth funds derive from oil exports or the accumulation of massive trade surpluses. Unfortunately, many of the regimes that bankroll sovereign-wealth funds are often authoritarian and sometimes downright dangerous.

In essence, the questions that somebody should legitimately ask is what if hostile governments take a stake in a strategic industry such as a computer chip manufacturer or what if it starts playing politics with its cash. China recently took a major position in Barclays bank, one of the largest commercial banks in the world.

In a nutshell, the larger the United States deficit, the less leverage the United States can deploy to stop unwanted takeovers. That is, if the United States is borrowing $2 billion dollars daily to finance its current deficits, can the United States really prevent takeovers of strategic companies?

There already have been political outcries over attempted takeovers of strategic United States entities. For example, despite the support of the Bush administration, the United States Congress prevented a state-owned company in the United Arab Emirates, to take over six major United States ports, including the ports of New York City and Philadelphia. Congress also blocked the takeover of Chevron by the China National Offshore Oil Corporation. Nevertheless, the writing is on the wall, as the assets of sovereign wealth funds grow toward $14 trillion dollars, Americans can expect major foreign ownership in a broad array of United States companies and real estate holdings.

Currently Largest Sovereign Wealth Fund

Abu Dhabi Investment Authority
Government of Singapore Investment Corporation
Saudi Arabia
Kuwait Investment Corporation
China Investment Company, Ltd
Central Jujjin (China) Investment Co.

Originally published in the Sarasota Herald-Tribune