Successful SWF Exits Cloak Underlying Problems

In recent weeks, we have seen a flow of sovereign wealth funds (SWFs), who were the white knights that rescued struggling banks during the nadir of the financial downturn, cashing in on their investments. While this is no doubt an instance of SWFs acting out of character as short-term profiteers, on a broader scale these state-backed investment funds - especially in the Middle East - are coming under increased scrutiny, owing to their recent heavy losses. Initially, opportunist SWFs saw banking stocks as cheap, but it turns out they had further to fall, so the funds lost out. It is only the SWFs that invested in banking stocks when the rebound was already underway that prospered.

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