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Sovereign Funds Become Big Speculators
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Other sources familiar with the activities of sovereign wealth funds spoke on condition of anonymity because their firms did not give them permission to speak publicly.
After spiking to a record high of $147.27 a barrel on July 11, crude oil settled at $114.45 yesterday, a plummet of 22 percent in a few weeks.
Although some analysts have attributed the recent reversal in oil prices to a stronger dollar and a sluggish U.S. economy, other experts in commodity trading have suggested that the price shifts have been accentuated by unregulated, speculative activity.
Over the past year, sovereign wealth funds have become increasingly active in the broader U.S. markets, investing more than $40 billion in Wall Street's biggest names, including UBS, Morgan Stanley and Bear Stearns. China put $3 billion of its $200 billion fund into private-equity giant Blackstone. Abu Dhabi, part of the United Arab Emirates, invested $1.35 billion of its estimated $875 billion fund into District private-equity giant Carlyle Group.
About two dozen countries have established or are in the process of forming large funds, including Iran, Norway, Singapore, Kuwait, Australia, Russia and Libya. While precise data about each of the funds can be difficult to obtain, Wall Street analysts say their collective value has exceeded $2 trillion and will probably grow at least fivefold by 2012.
In a June 20 letter to the House Committee on Energy and Commerce, CFTC acting chairman Walter Lukken wrote, "The growth of sovereign wealth funds and their collective investment in U.S. markets is of interest to a number of U.S. regulators."
He said the agency was aware of only one sovereign wealth fund with large holdings trading on regulated U.S. exchanges. He added that his staff had "not observed any positions of sovereign wealth funds in the data received to date" from a London exchange that shares information with the CFTC. Trading activity anywhere else would not be regulated or captured by CFTC surveillance reports, agency officials said.
Some Democrats greeted Lukken's responses with skepticism. Sen. Maria Cantwell (D-Wash.), for one, has put a hold on Lukken's nomination in the Senate, preventing him from becoming the permanent chairman of the CFTC on the grounds that he has not kept speculation under control.
Speculators, she said, "are causing a colossal impact on the markets, and we don't have the right team to oversee and analyze whether the consumer is being protected."
The CFTC, she added, is "banking on this being too complicated for anyone to understand."
