Abstract
Oil wealth meets futuristic electric cars may sound like an odd mix. But there is growing precedent for this kind of investment from sovereign wealth funds, which are motivated by social as well as financial aims. So much so that they are disrupting how capital markets work.
The result could be calamitous. A look at the history of large inflows into specific asset classes does not bode well for the venture capital industry. When petrodollars were funnelled into the eurodollar market in the 1960s, it drove asset spikes and then resets. Similarly, Japanese investment in American real estate fuelled a spectacular bubble – and then crash – in the early 1990s. US investment bank lending in Latin American debt in the 1980s ultimately culminated in a “decade of lost growth”.
A typical refrain is that “this time it’s different”. But it’s never different. We argue that the global rise of sovereign wealth fund investments into venture capital is driving a similar cycle of asset inflation that will end in tears.
The result could be calamitous. A look at the history of large inflows into specific asset classes does not bode well for the venture capital industry. When petrodollars were funnelled into the eurodollar market in the 1960s, it drove asset spikes and then resets. Similarly, Japanese investment in American real estate fuelled a spectacular bubble – and then crash – in the early 1990s. US investment bank lending in Latin American debt in the 1980s ultimately culminated in a “decade of lost growth”.
A typical refrain is that “this time it’s different”. But it’s never different. We argue that the global rise of sovereign wealth fund investments into venture capital is driving a similar cycle of asset inflation that will end in tears.
| Original language | English |
|---|---|
| Specialist publication | The Conversation |
| Publication status | Published - 21 Aug 2018 |