An year ago, sovereign wealth funds’ exposure in big US investment banking giants like Lehman Brothers and Merrill Lynch was seen as a big winner for investors such as Norway’s government pension fund Global (recycling funds from the nations oil and gas revenues), which invested in Lehman Bros, and Singapore’s Temasek which poured in around $6 billion in Merrill Lynch. However, with the ghost of the credit crisis coming to haunt these tony names of Wall Street, the fund houses are now licking the wounds.
While Norges Bank (which manages the Norway fund) has stated that the bank is monitoring the developments closely and had been prepared to see Lehman filing for bankruptcy, there have been moments of tension for others such as Korea’s Korea Investment Corp, Kuwait Investment Authority and Temasek who have stake in Merrill Lynch.
The bunch of sovereign wealth funds who had invested in Merrill Lynch are now waiting for the deal with Bank of America. While the BofA’s offer of $29/share should keep investments from a lot of these funds afloat there is lot of skepticism over the deal going through which has stumped the share prices of BofA. This has not helped Merrill Lynch either. While BofA scrip tanked 21% on Monday (Sept 15), investors were not too interested in Merrill Lynch even with a 70% premium over market prices, which is embedded in the BoA offer.
One Indian who would be closely watching the developments is Manish Kejriwal, the head of Temasek India who doubles up as the head of global banking practice of Temasek. In fact he had led the Merrill Lynch investment and had said back then: “This capital raising will enable Merrill’s management to focus on the execution of its business strategy and deliver shareholder value. Our participation in this capital raising exercise is a vote of confidence for the management team, and the underlying strengths of Merrill Lynch’s franchise.”
Kejriwal was part of the core team of 6-7 people involved in the Merrill Lynch transaction. Incidentally, this deal was struck in record time with a span of just about 3-4 weeks of negotiations.
If the deal actually goes through at that price $29/share, Kejriwal can still emerge as a winner. According to, the Singapore sovereign wealth fund paid $5.9 billion since December for about 14 percent of Merrill at an average price of $23.11 a share, after factoring in follow-on fund infusions. This means BofA deal would result in a $1.5 billion gains for Temasek.
Korea Investment Corp made an investment of $.6.6 billion which it converted into 72 million Merrill shares at $27.50 apiece. So their gains are reportedly a modest $108 million.