William Cohan, of Last Tycoons fame, runs through the portents for the latest Wall Street fad of propping up ailing capital accounts with cash from sovereign wealth funds.
In the FT, he argues that the hand-wringing over the sales as evidence of a badly damaged and rudderless global capitalist system may be misplaced.
Goldman Sachs was at it back in 1986, flogging a 12.5 per cent equity stake to Japan’s Sumitomo Bank. Felix Rohatyn, the banker who put the Sumitomo-Goldman deal together, said at that time:
The reality of life is that banking and investment banking always gravitate to where the capital is, and the capital is in Japan.
Fast-forward 20-odd years and for Japan, read the Middle East and Asia.
As an aside, Yves Smith at Naked Capitalism takes issue with any suggestion that Goldman was out looking for emergency capital back then, or that Sumitomo got its stake on the cheap. He points out that Goldman was sought out by Sumitomo, was highly profitable at the time of the sale and received a hefty valuation.
Cohan notes that in 1992, Goldman again sold out – a $500m stake to Hawaii’s Bishop Estate, a trust established to educate the children of Hawaiian ancestry.
Both of the investors reaped rewards – with their investments up at least threefold by the time the bank went public in 1999 – and would have continued to do so should they have continued to hold Goldman shares. With hindsight, says Cohan, both deals look like steals.
Not that it is always so. In the 80s, Groupe Bruxelles Lambert invested about $100m into Drexel Burnham, only to lose its entire investment. The Chinese government has already lost – on paper – some $600m of the $3bn it poured into Blackstone pre-IPO.
Cohan concludes:
No doubt Temasek, Abu Dhabi Investment Authority and China Investment Corp are optimistic that their investments will work out in the long run. But just as no one is smart enough to call a market bottom, no one can predict the future of the world’s increasingly volatile capital markets. Not even the geniuses at Goldman Sachs.