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Blackstone defends sovereign wealth funds

Chief executive Stephen Schwarzman says sovereign wealth funds are being made to feel unwanted in the West amid intense scrutiny of their activities. It could, he warns, have a ‘chilling effect’ on their desire to invest.

The Blackstone Group’s Stephen Schwarzman has warned the developed world to “lower the temperature level” on scrutiny of sovereign wealth funds amid fears it could discourage investment.

The chief executive officer of the New York-based private equity firm was speaking at a panel discussion at the Asia Society in New York today when he said the increasing focus on sovereign wealth funds could produce a “chilling effect” on their desire to invest in the West.

Schwarzman, cited in a report by Reuters, said recent injections of cash by sovereign funds to US banks had been “more acts of faith” in the capital system that were now being rewarded by “unwanted visibility.”

In the first two months of this year, sovereign wealth funds invested $24.4 billion in the financial sector, according to data by Dealogic – almost half the volume invested in 2007. However the investments have come under intense scrutiny by politicians in developed nations amid fears foreign governments will attempt to exert control over key national assets.

Schwarzman said at the Asia Society panel that such scrutiny was “not particularly good given the fragility of the global financial system” adding: “I think we have to be pretty careful about what we're doing in the midst of a capital crunch.”

Schwarzman has previously defended the role of sovereign wealth funds, most recently at January’s World Economic Forum in Davos where he told delegates sovereign funds were “model investors.”

As reported on PERE’s sister website, PEO, the chief executive said at the time funds had been working with Blackstone for years, adding: “Our experience with the sovereign funds is that they’re smart, they’re long-term, they’re highly professional. All they’re looking for is to earn the highest rate of return that they can.”

China’s Government Investment Corporation bought a $3 billion, 9.9 percent stake in Blackstone ahead of the firm’s initial public listing last June.