PM’s sovereign wealth fund plan more raises questions than it answers

The Portuguese government’s proposal to create a sovereign wealth fund capable of acquiring stakes in strategic companies has sparked widespread debate, with economists, former ministers and business leaders questioning how it will be financed, what it will invest in and whether it represents a fundamental shift in the centre-right administration’s economic philosophy.

According to an investigation by Expresso, Prime Minister Luís Montenegro’s announcement at the PSD party congress took many by surprise – not least because his government has consistently favoured greater private sector involvement in the economy, including recent plans to sub-concession the Cascais railway line.

Montenegro described the fund as an instrument to strengthen Portugal’s sovereignty, allowing the Portuguese State to purchase shareholdings in strategic sectors while creating long-term savings for future generations.

Government sources told Expresso the new vehicle would initially hold existing state-owned stakes in strategic companies, beginning with the government’s 8% shareholding in energy company GALP. However, key details remain unresolved, including which assets the fund would acquire, whether investments would be made through market purchases or nationalisations, and how “strategic sectors” will be defined.

The proposal has also prompted warnings over possible conflicts with European Union competition rules.

Former finance minister and former Bank of Portugal governor Mário Centeno told Expresso the measure runs counter to decades of PSD economic policy and cautioned that state investments in companies operating in competitive markets could face scrutiny from Brussels.

He cited the example of a potential state purchase of Chinese conglomerate Fosun’s 20% stake in Millennium BCP. With the Portuguese State already owning Caixa Geral de Depósitos, becoming one of BCP’s largest shareholders could raise concerns for the European Commission’s competition authorities.

Centeno also questioned how the fund would be financed, warning that acquisitions would either require money diverted from the State Budget or be funded through additional public borrowing at a time when Portugal is expected to return to a modest budget deficit and public spending is rising faster than anticipated.

Debt financing under consideration

According to Expresso, the government is considering placing the fund under the responsibility of the Treasury and Public Debt Management Agency (IGCP). Business daily Jornal de Negócios has reported that the agency is examining ways of financing acquisitions through long-term sovereign debt issuance.

This proposal has raised further concerns.

Former IGCP president João Moreira Rato told Expresso the agency has extensive expertise in managing Portugal’s public debt but little experience overseeing equity investments.

“The IGCP has built a strong reputation managing debt. I don’t see the advantage of giving it responsibilities for which it has no experience,” he said.

He suggested a sovereign fund could make sense if it were used primarily to hold minority financial investments, such as small stakes in emerging sectors including artificial intelligence, rather than controlling interests in companies.

Strategic sectors in the spotlight

The PM indicated the sovereign wealth fund could invest in energy, banking, telecommunications and even airport infrastructure if concession holders fail to meet their contractual obligations.

The remarks have further fuelled speculation over possible future state investments in companies such as electricity grid operator REN, Millennium BCP and airport operator ANA.

Expresso reports that despite previous comments by Montenegro expressing interest in returning REN to state ownership, the government has made no approach to the company.

Similarly, no contacts have been made with French infrastructure group Vinci regarding a possible state stake in ANA – Aeroportos de Portugal, despite longstanding political concerns over the strategic importance of Portugal’s airport network.

The newspaper also found no indication that Millennium BCP has been approached regarding any potential state investment linked to Fosun’s planned exit from the bank.

Thus, for now, the sovereign wealth fund remains a political ambition rather than a defined investment vehicle, with major questions over its structure, financing and objectives still unanswered – and a rather stinging criticism by Socialist leader José Luís Carneiro reverberating in the background. After the sovereign wealth fund announcement, Mr Carneiro said Luís Montenegro’s government has become (in)famous for making  announcements.

“If governing were about making announcements, well, we would certainly have one of the best governments in the world,” he told reporters, on the sidelines of a working visit to the Ramirez fish canning factory in Matosinhos on Monday. “But since governing is about more than making announcements, then we are, in fact, in a much worse position.”

Source: Expresso