In the latest move underscoring China’s push to create captive supplies of key natural resources, Blackstone Group LP (BX) is planning a bid for Rio Tinto PLC (RTP) that may include China’s sovereign wealth fund, according to several media reports emanating from Asia early today (Monday).

China Investment Corp., which in May paid $3 billion for a 9.4% take in Blackstone, has already denied this month that it might bid for the London-based Rio, which itself is already working to wriggle away from a $137 billion hostile offer from BHP Billiton Ltd. (BHP). Blackstone operates the world’s biggest leveraged buyout (LBO) fund.

But Blackstone has appointed lawyers and is in talks with banks and public-relations companies to position itself for the huge buyout offer, according to the London-based Daily Telegraph newspaper and Bloomberg News.

A BHP takeover of London-based Rio would concentrate supply of copper, iron ore and coal and may spur Chinese companies to step up global takeovers to secure raw materials. Although investors evaluating the reports sent Rio Tinto’s shares higher by nearly 2% in trading in Australia early this morning, not everyone believes the media reports are true.

“I don’t think China Investment Corp.’s current position in Blackstone is big enough to use Blackstone as an investment tool,” Lu Yizhen, who helps manage $640 million at the Shanghai-based Citic Prudential Fund Management Co., told Bloomberg.

But the pending potential buyout illustrates two key global trends that U.S. investors should watch closely – and capitalize on for substantial possible profits – as the trends play out. The rumored deal underscores:

• The inspired push China-based firms are making to lock up suppliers of key commodities – a push that has the blessing of their government.
• And the growing importance of so-called “sovereign-wealth funds,” the gigantic state-run investment pools that are projected to become dominant forces in global finance in the decades to come. Indeed, according to one estimate, the amount of capital held by worldwide sovereign wealth funds could grow from $3 trillion today to $12 trillion 2015. And that may be conservative, as some forecasts state that the funds could hold $20 trillion by the middle of the next decade.

Other buyouts announced late last week stand as additional evidence that these forces are already at work.

The List of Deals Grows Longer

In a buyout proposal announced late last week, China’s second biggest iron ore trader, Sinosteel Corp., has offered to pay $1.1 billion for Midwest Corp. Ltd. (PINK: MISKF), an Australian mining company.

Nor was Sinosteel wasn’t the only China-based company shopping last week, The Wall Street Journal reported. Northern Peru Copper Corp., a mining company based in Vancouver, revealed it received a $449 buyout bid from a duo of other state-run ventures from China: China Minmetals Nonferrous Metals Co. and Jiangxi Copper Co., (PINK: JIAXF). In a company statement released late Thursday, Northern Peru Copper said it supported the bid. A Minmetals spokesman declined to comment. Jiangxi Copper officials couldn’t be reached.

Even though Rio Tinto Chief Executive Officer Tom Albanese, recently described a prospective $137 billion merger with BHP as being “dead in the water,” the very specter of such a mega-merger has served as a wakeup call to many in the Chinese metals industry.

“The potential BHP-Rio merger has prompted Chinese companies to speed up overseas acquisitions to grab more resources,” Ma Hatian, an analyst with Beijing Antaike Information Development Co., told Bloomberg News. “China is repeating what Japan had done in the 1980s [and] that is to boost overseas investment to secure raw materials for development of its heavy industries.”

Too Big To Ignore

Indeed, if BHP and Rio did merge, the combined company would have market value of about $380 billion and annual sales of about $54.6 billion, based on 2006 figures. By contrast, archrival Anglo American PLC (AAUK) had revenue of only $33.1 billion last year. Even more critical: The combined BHP-Rio would control 38% of the seaborne iron ore trade, according to Australia & New Zealand Banking. China’s leaders fear that such an industry colossus would give suppliers greater leverage and lead to vastly higher prices for a country that is the world’s biggest user of iron ore and other key minerals.

Rio has spurned BHP’s advances, saying the latter company’s offer was way too low. And many experts believe it would take an offer of at least $200 billion for an industry player such as Baoshan Iron & Steel Co. Ltd., otherwise known as Baosteel, to get a deal done.

The government-owned Sinosteel has an initial joint venture with Midwest to develop two iron ore projects in Western Australia. But a merger would give the company a reliable supply of raw material for its operations.

“They want to get their hands on iron ore direct,” Gavin Wendt, a senior resource analyst at Fat Prophets Management, told Bloomberg. “It isn’t surprising given the extraordinary level of Chinese interest in Australian iron ore.”

The price of iron ore has risen for five straight years on increased demand from China, the world’s largest steelmaker. Many analysts believe prices will rise 50% next year.

Last week, Baosteel, China’s largest steelmaker, said it was seriously considering a bid for Rio Tinto. However it doesn’t look as though Rio is for sale. In addition to saying a deal with BHP was effectively stalled, Albanese, Rio’s CEO, said his firm had been approached with offers from other suitors, but isn’t interested.

“Lots of people have been calling, but we have not been engaging,” Albanese said in an interview with CNBC.

With Blackstone and China Investment now reportedly involved, the question now becomes: To engage, or not to engage? Only time will tell.

News and Related Story Links:

• Bloomberg News:
  Blackstone, China May Bid for Rio, Telegraph Says.
• Money Morning:
  Fang-Temasek Partnership the Latest in a String of High-Profile Sovereign Wealth Deals.
• Bloomberg News:
  China’s Sinosteel Offers A$1.2 Billion for Midwest.
• Money Morning:
  Blackstone Booms on Its First Day of Trading.
• CNBC:
  Rio chief says BHP proposal "dead in the water."
• Money Morning:
  Chinese Steelmakers Set to Swing Back at BHP Billiton.
• Money Morning:
  The Iron Giant That Could Challenge the Chinese Mega-Market.
• The Wall Street Journal:
  Chinese Mining Firms Look For Assets in Australia, Canada.
• Fat Prophets Management.
• Gavin Wendt, Fat Prophets Management Head of Mining and Resources Management.
• Money Morning:
  State Investment Funds: Beware of the Big New Buyers.

Central banks continued funneling cash into the world’s wounded financial systems Monday, the latest in a series of liquidity infusions that began last week. The European Central Bank offered another $65 billion in emergency funds, while the Bank of Japan injected $5.1 billion. The Federal Reserve again came in on the low end of the scale, injecting $2 billion.

As a result, Europe’s Dow Jones Stoxx 600 index had made its biggest climb in more than a year, 2.3%, after dropping 2.6% last week. The FTSE 100 index closed up 180.7 points, or 3%, marking its biggest gain since 2003.  

U.S. stocks failed to make such noteworthy comebacks. The day started off with an optimistic tenor as market indexes spent most of the day in the black. Fears concerning the ongoing credit crunch were assuaged as central banks continued to offer loans, along with the release of an impressive sales report.

But the Dow Jones Industrial Average and Standard & Poor’s 500 Index both slightly down, at 0.2% and 0.5%, respectively. At their highest point in the day the Dow was up 0.7%, and the S&P 0.8%. Unfortunately they could not sustain a comeback, and collapsed at the closing bell.

Some came out ahead however. Blackstone Group (NYSE: BX) picked up 1.7% after reporting it had tripled its quarterly profit and revenue.  Alcoa (NYSE: AA) climbed 2.45%, and Hewlett Packard (NYSE: HPQ) jumped 2.58%. 

As a global trader interested in aligning my money with the most powerful trends of the day, I’m constantly watching the headlines in search of the latest moneymaking opportunity.

I am particularly interested in stories that emblazon the front pages of newspapers everywhere else around the world, but that barely even rate a mention here in the United States. So often, this signals an important investment opportunity that the “herd” has yet to discover. I like to call this my “Rule of the Back Page.”

The ongoing Barclays PLC (NYSE: BCS) /ABN AMRO Holding NV (NYSE: ABN) saga is a terrific case in point. Although the deal isn’t done, the way it’s been structured – with private-equity financing from the China government – suggests there are powerful changes looming in the financial markets. And that means there will be new ways for savvy individual investors to profit in the years to come.
 
The essence of this fascinating financial tale is this: The China Development Bank just plunked down $3.03 billion to buy a stake in Barclays, an old line European banking legend. Factor in China’s recent $3 billion investment in The Blackstone Group LP (NYSE: BX), the U.S. private-equity powerhouse, and savvy market-watchers will suddenly realize the Chinese government has achieved several key objectives. Indeed, China has:

• Purchased unprecedented access to the global financial markets.
• Acquired what’s arguably the very best investment-banking expertise in the world.
• Lined up a steady flow of opportunities for its $1.3 trillion in foreign reserves (an amount that’s reportedly growing by another $200 million every six months).

To give you an even better understanding of the deep game that China is playing, consider this: With the $3 billion investment from the Chinese government, Barclays has been given the equivalent of an open hunting license in China, which desperately wants (and needs) to modernize its commercial banking industry.

But Barclays isn’t the only one that gains here: With its shrewd maneuverings, China is a “stealth” beneficiary. You see, because China is now a valued Barclays shareholder, any outsized profits that accrue to Barclays also accrue to China’s government-investing operation.

And that’s above and beyond the gains in commercial-banking and capital-markets expertise that we already mentioned. All of these things were previously unavailable to the Chinese.

Where the rubber meets the road as far as I’m concerned is that deals like Barclays and Blackstone provide us with an important early insight into a favorite strategy of mine: Making money by investing in companies that will benefit “because of” China. And that’s a strategy that will lead to much greater short-term profits – and at a much lower rate of risk – than strategies that focus solely on investing “in” China.

[Editor’s Note: Watch for a new investment-research report by Keith Fitz-Gerald on this very topic in the near future. Fitz-Gerald will not only detail the strategy itself, but will also outline the companies best positioned to benefit. The research report, and the accompanying recommendations, will be free of charge to all Money Morning subscribers.]

The Background on Barclays

London-based Barclays is courting ABN AMRO, a 183-year-olf Dutch bank, but so is Barclays arch-nemesis Royal Bank of Scotland (LON: RBS). As of early August, both parties were offering almost-unfathomable amounts of money in what may ultimately be the richest buyout in financial history.

But it wasn’t always that way. In fact, back in April, Barclays was ABN’s only suitor. The problems surfaced in July, when RBS trumped Barclays by showing up with a higher offer of its own for ABN.

Barclays execs were forced to scramble and find additional money for a boosted bid. Their search took them to the other side of the world, and to the most unlikely of sources for private-equity capital: The government of China. Indeed, the China Development Bank agreed to help Barclays up the ante, and kicked in some $18.76 billion in cash.

At present, the Barclays bid is estimated at $92 billion, of which approximately 37% is in cash. RBS is offering roughly $97 billion (give or take a few dollars, depending on the exchange rates of the day, thanks to a financing consortium that includes Banco Santander SA of Spain, and Fortis NV, which also is Dutch).

But where Barclays wants ABN lock, stock and barrel, the RBS-led consortium wants to take ABN apart, and split it amongst the participants, much like a pack of wolves would split up the carrion of a kill.

Interestingly, the ABN board initially favored the acceptance of the Barclays’ bid, noting that it was consistent with ABN’s “strategic vision.” But the board has apparently had a change of heart in the past few weeks. This doesn’t particularly make sense, given that ABN CEO Rijkman Groenink is on record as saying that he prefers the lower Barclays’ bid because it carries less “execution risk.”

But then again, few things rarely make sense in the hidden world of mergers and acquisitions.

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When $5 Billion Less is a “Better” Deal

In effect, Groenink is saying he’d sooner take a $5 billion hit and leave money on the table than risk a failed transaction and the possibility of more money at the day’s end. This suggests there’s more to this deal than meets the eye….and there is – especially if you take the time to “read between the lines.”

What the ABN CEO isn’t saying (but is most certainly thinking) is that he’ll take the Barclays deal backed by the funding from China, because he knows the cash-rich Chinese are good for it and that there’s almost no chance the deal will fail. Besides, I’m betting that he also believes Barclays has the $5 billion in question, and that someone will simply pony up the additional cash when the time comes – no questions asked.

Clearly, too, he’d rather take the certainty of the well-funded deal over the uncertainty of an extra $5 billion from a consortium that will likely break up his bank when the deal is done.

His board of directors, on the other hand, seems to want the additional $5 billion.  However, rumor has it that the directors are also concerned that China’s involvement in such a deal is a “national” problem along the lines of the U.S. concerns that essentially forced the China-controlled CNOOC Ltd. to drop its $18.4 billion bid for Unocal Corp. two years ago…at least if you believe the global grapevine.

And the Barclays board has some major concerns of its own. They have to realize that if their gambit fails – and RBS ends up as the triumph bidder for ABN AMRO – that Barclays itself will end up as a takeover target. It’s the ultimate irony, but it happens all the time. Since former Barclays director Justin Urquhart-Stewart was recently quoted as saying as much, I’m certain I’m right on that point.

It’s the oldest story in the M&A world…the hunter becomes the hunted. If one suitor that’s going for growth strikes out in its bid for a company, it suddenly finds itself bore-sighted by other players who sense its weakened condition … just like circling sharks who sense when there’s “chum” in the water. One case-in-point is PacificCorp., which spent more than $300 million in failed bid for Britain’s Energy Group – and wound up being taken out by Scottish Power.

Both ABN AMRO bids have their strong points, and that’s what makes this affair so very interesting. In true Asian fashion, the circle truly does go around, so bear with me as I bring this full-circle and close the loop for you.

The ‘Great Wall Street’ of China

By agreeing to help Barclays pursue ABN AMRO, China’s Development Bank is demonstrating a very sophisticated understanding of how the world’s capital markets work, as well as a real willingness to do what it takes to “play with the big boys.” What’s more, despite cultural norms that in the past would likely have prompted China to withdraw from the international deal arena after it “lost face” by failing at its first deal, the Barclays bid for ABN demonstrates a newfound shrewdness and newly acquired willingness to learn from its mistakes.

For instance, the China Construction Bank purchased Bank of America’s Hong Kong and Macau branches, while Singapore’s Temasek Holdings acquired a 12% stake in Britain’s Standard Chartered Bank – becoming the largest shareholder in the process. Of course, people are more familiar with the Blackstone infusion made by China’s State Investment Company, a deal that made headlines around the world.

But here’s where it gets really interesting: What few folks realize is that Blackstone served as the China Development Bank’s financial advisor when it made its initial $2.2 billion investment in Barclays.

Hmmm…see a pattern here? I thought you would …

What’s happening is uniquely Asian and Chinese on one hand, with a smidgen of Gordon Gekko mixed in for flavor. Not only have the Chinese waded into the world’s capital markets with amazing speed, but they are apparently unafraid to bring substantial resources to bear in the process.

This represents a marked change from historical norms in which the Chinese operated largely inside their own sphere – inside their own borders, where they were content to implement their own relatively primitive and ineffective changes in what was a highly protected financial market. These surprising developments also suggest a willingness to learn from “the best,” which, in the ultimate irony, means us.

In traditional China, a failed deal like the afore-mentioned move on Unocal would once have represented such a loss of face that any attempts at global dealmaking would have ceased right then. But China’s budding financiers had a real revelation: The nation’s politics and human rights reputation very likely made it an undesirable outright suitor, or direct partner. But, by stepping in behind an acceptable “front man,” China was one giant step removed from any financial transaction. And when that front man is an all-American wheeler-dealer like dealmaker Blackstone, well, it suddenly doesn’t matter as much who you’re bringing to dinner – or to the deal table.

Why China of 2007 Isn’t Japan of 1987

While many investors are stunned to see the Chinese on the financial scene in such a big way, longtime global market makers aren’t surprised at all. Indeed, they’ve been expecting this for some time.

You see, they recall all too well what happened back in the late 1980s. If you recall, like the Chinese now, the Japanese then were flush with cash and were buying everything that wasn’t nailed down – and even a few things that were.

I know…I was there in the institutional markets helping them do it.
 
Almost overnight, the newly wealthy Japanese were viewed with fear. Americans talked about the invincible “Japanese superman,” an unstoppable juggernaut who never made mistakes. Japanese cars filled American roadways, and Japanese-owned companies started buying up all sorts of high-profile “trophy” assets: Universal studios, Columbia Records, Rockefeller Center and the Pebble Beach golf course (with its lonely cypress tree) all had new ownership. Lawmakers sounded the alarm, and so did the U.S. news and entertainment media. Fortune magazine carried a piece entitled, “Where Will Japan Strike Next?”And author Michael Crichton’s alarmist book, Rising Sun, was made into an equally alarmist – but no less fun to watch – feature film that starred Sean Connery and Wesley Snipes.

Several things make it different this time around, with China:
                

• First, while Japan had the money to pull off the deals, it didn’t have the economic backing to sustain them. So it’s no surprise that Japan’s economy fell off a cliff for 15 years, and has only recently started to claw its way back to its prior heights.     But China, on the other hand, boasts an economy that’s growing at three times the speed of its U.S. rival. And, by most estimates, it can continue to grow at this pace for several decades to come.
• Second, the Japanese buying spree of the late 1980s was confined largely to hard assets, with only a smattering of actual corporate buyouts mixed in. Perhaps the fatal flaw was that Japan just couldn’t get past the notion of intrinsic growth, and never lost its preference for growing things internally. Had Japan been able to get past this mental roadblock, it might actually have ended up with the global diversification necessary to stave off the worst portion of its long depression – but that’s merely conjecture on my part.
• Third, China is avoiding the other key missteps that Japan repeatedly made. The Chinese are not only buying the companies they need, they’re snapping up the required resources and intellectual capital, too. In marked contrast to the mid-1980s Japanese, China’s business leaders of today have no qualms about buying the intellectual advice they need to make sure they’re deploying their cash in the most efficient places possible. What’s more, they are not confining their efforts to hard assets as the Japanese did and that means individual investors can grab a piece of the action along the way.

The Next Places to Profit

Speaking of which, I think the next great wave of Chinese acquisition targets will be Canadian resource companies valued between $200 million and $1 billion. Not only are they financially transparent, but many of these companies possess reserves valued above and beyond present cash flows. And when a potential suitor wants these properties as badly as China clearly does, they will pay up – meaning that these companies will go out at a value greater than anything we’d ever think to calculate using our conventional valuation models.

The pace of those deals will start accelerating in the very near future.

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Contributing Editor Keith Fitz-Gerald, a brand-new addition to the Money Morning research team, is one of the world’s foremost experts on the Asian markets, especially China and Japan. A professional trader who works with wealthy investors and institutions, Fitz-Gerald is also a seasoned market analyst known for his accuracy, perspective and insight, Fitz-Gerald is also a professional trader who has worked with high-net-worth investors, and who’s also advised major institutions. A truly global investor and an expert on Asia, he and his family split their time between Portland, Oregon and Kyoto, Japan.

When Britain’s Barclay Bank PLC (NYSE: BCS) boosted its bid for Dutch Bank ABN AMRO Holding NV (NYSE: ABN) to more than $93 billion in the world’s largest-ever takeover battle, it did so thanks to a financial boost from state-run investment funds in China and Singapore.

The $20 billion investment in Barclays by the China Development Bank and Singapore’s Temasek Holdings is merely the latest in a series of deals announced in the past few months by equity funds that export-rich countries have established to invest their rapidly soaring currency reserves.

In the midst of a private-equity-led takeover boom that sent U.S. stocks into record territory, watchful international investors cheered as such countries as China, Singapore and Dubai unveiled these funds. These new players, investors reasoned, would help keep stock prices high, if not send them even higher.

But let me tell you how I see this: I’m not at all sure that, as a shareholder, you should welcome them. Let me explain…

Foreign Reserves 101

Traditionally, a country’s foreign-exchange reserves were held by its central bank as a kind of contingency fund. For instance, the capital might be used to fend off a financial crisis – if the international bond market went into a tailspin, for example. Conservative institutions by nature, central banks invested these reserves in safe, short-term investments such as U.S. Treasury bills, maybe diversifying as far as the Treasury bond market, or even into Federal Agency bonds.

But with the massive growth of Asia, and the soaring oil prices of recent years, some countries have seen their reserves get so big that no imaginable crisis could ever cause the entire amounts to be used. Singapore and some Middle Eastern countries reached that level as far back as the 1970s. More recently China, with an estimated $1.3 trillion in reserves (an amount that’s rumored to be growing by an additional $200 billion every six months), and Japan, with $900 billion, have decided to direct part of this hoard into longer-term investments, figuring they’ll get much-better returns than are available via T-bills.

At first glance, this development will leave you feeling as if you want to jump for joy. Singapore’s Temasek Holdings has invested part of that country’s dollar reserves since 1974, and now has about $80 billion under management. Kuwait, Dubai and Saudi Arabia have strategic investment funds that have become quite huge in the past few years, as oil prices have surged.

And now China has announced that it intends to invest a substantial portion of its ever-spiraling reserves into stocks, as well as “strategic” foreign assets. You’ll find Japan’s investment pool is even more mouth-watering: In addition to its $900 billion of foreign exchange reserves, it is considering foreign investments for the $1.6 trillion held by Japan’s Postal Savings Bank and the additional $1.3 trillion that’s in its Government Pension Investment Fund. On a note that I find a bit more sinister, Russia said it will strategically invest a portion of its $250 billion in reserves.

We’re talking about a gigantic amount of money here – between $5 trillion and $6 trillion in total, for those of you who stopped counting. Even if most of this capital gets invested through private deals like China’s $3 billion investment in The Blackstone Group LP (NYSE: BX) in May or the Barclays deal, it still allows Blackstone to buy more companies, or Barclays to make a higher takeover bid than would otherwise have been possible. What’s more, if there’s $6 trillion to invest, there aren’t enough really special private deals to go around. At some point, the investment manager will surely have to pick up the phone to the trading desk and yell, in the classic Hollywood manner: “Buy!! And keep on buying ‘til I tell you to stop!” Surely that must be great for all of our stock portfolios, correct?

Not necessarily, as it turns out.

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Public-Sector Contestants, Private-Sector Rules

If we could depend on these folks to buy stocks indiscriminately – in essence, placing a giant-suction pump atop the market, and slurping shares across the board to higher levels – we could at least expect a nice short-term jump in share prices. However, what you and I must keep in mind is that these folks aren’t free-market operators: The funds are run by politicians, and several are steered by governments most of us wouldn’t want to live under – and definitely not governments any of us would want to “fail” under.

The problems of having major companies owned by the likes of China or Russia have now dawned on the EU bureaucrats and the Bank of England, both of whom have sounded the alarm regarding the dangers of strategic assets being controlled by foreign governments.

In that context, it wouldn’t seem that Barclays – a fairly simple commercial bank, despite its heft – would be problematic. And yet even the Financial Times, a committed friend of free-capital movements, raised this most-vexing question: What if Chinese interests took over Barclays altogether, and then proceeded to lend out the deposits of British savers with the same care they’ve lent out their own money back at home in China?

There are at least $1 trillion in bad debts sloshing around in the labyrinthine Chinese banking system. I don’t know about you, but I surely wouldn’t want to see British savers being forced to bail out a rotting mess like that. Or, in an example a bit closer to home, consider the U.S. banking system, where bank accounts are insured by the federal government? Taxpayer bailout, anyone?

Because the funds – and the countries that back them – run the gamut in terms of size, experience and ultimate objectives, it’s tough to apply a single yardstick in evaluating them. Singapore, for instance, is probably fine. True, the country has a reputation for flogging teens that drop bubble-gum wrappers on the sidewalk, or mischievously set off car alarms. But none of that will affect its investment results. And those results have presumably been decent, given that it’s been around for more than 30 years. Besides, it’s “only $80 billion” that we’re talking about here. And that’s not even enough to finance the ABN AMRO buyout on its own.

Dubai, on the other hand, has had to navigate some rougher waters. The Middle Eastern country – the home of the world’s only “7-star” hotel and the world’s tallest building  – saw its investment fund get into trouble last year when it bought the British-owned Peninsular and Oriental Steam Navigation Co. (which, alas, no longer runs ocean liners “port-out, starboard home” through the famed Suez Canal, but instead held the management contract on roughly two-dozen of U.S. ports).

The Dubai fund’s DP World business unit requested – and received – the approval of U.S. regulators to assume management of the American ports. But after some major huff-and-puff by Congress, which opposed the deal on security grounds, Dubai agreed to sell the U.S. port contracts to a U.S. firm, which turned out to be the asset-management arm of insurer American International Group Inc. (NYSE: AIG). In the end, both U.S. relations with Dubai and Dubai’s appetite for U.S. assets were dented. For details on Dubai’s shrewd new private-equity plays in Europe and Asia, click here.

As you can see, at best it’s a crapshoot, and at worst it’s a can of worms.

At one extreme, Singapore and Japan are so benign (and, in Japan’s case, so cautious), that as an investor, you would welcome both as fellow shareholders. But at the other end of the spectrum, Russia’s track record is currently so bad that you’d probably find yourself just waiting for it to loot the company, or to pull some other shenanigans that would wreck your investment. China and Dubai are somewhere in between, although we’ve already seen how easily they, too, could spawn problems in your investment portfolio, or with your national economy.

Overall, it looks to me like the emergence of state-run venture funds is a trend that we’re going to have to deal with for some time to come. Aside from the occasional messy political spillovers, and the occasional required investment disclosures, they’ll often be able to operate well below the radar of the world’s supervisory bodies.

That will make them exceptionally tough – if not impossible – to regulate. And that makes it highly probably that you’ll wake up one day to discover one’s become your partner. The decision of what to do then will be entirely up to you.

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