WASHINGTON - THE United States, Singapore and Abu Dhabi have unveiled principles that they hope will help to ease the friction between controversial sovereign wealth funds (SWFs) and the countries that receive investments from them.
The principles were agreed upon during a meeting between senior officials from all three countries here on Thursday.
It is the first time that a set of principles has emerged to define at one go the ideal behaviour expected of all parties in the equation.
Dos and don'ts
THE US, Singapore and Abu Dhabi have agreed on a set of investment principles which they hope will be an example for others to follow:
SWFs should:
> Base investment decisions on commercial grounds, rather than geopolitical goals, and formally state that they do so.
> Disclose more about their purpose, investment objectives, institutional arrangements and so on.
> Have strong governance structures, internal controls, and operational and risk management systems.
> Compete fairly with the private sector.
> Respect regulatory and disclosure requirements.
Host nations should:
> Not erect protectionist barriers.
> Ensure predictable investment frameworks and rules that are public, clear and supported by a strong and consistent rule of law.
> Not discriminate among investors.
> Respect investor decisions by being unintrusive. Any restrictions imposed for national security reasons should be proportional to the genuine risks.
SWFs are created by governments to invest the vast budget surpluses of their countries overseas.
But the recipient countries often question the motives behind such investments, fearing that the donor nations will try to exert economic and political influence on their shores.
The stated intention of the new principles between the US, Abu Dhabi and Singapore is to buttress larger-scale moves under way at the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development to draft best practices for these funds.
With combined assets of around US$3trillion (S$4.2 trillion), SWFs now dwarf hedge funds and private equity funds as a key element in the global financial system.
The new principles say that SWFs should commit to investing on a purely commercial basis.
The recipient countries, in return, are asked to avoid putting up barriers to investment - a top concern for SWFs.
The principles were contained in a joint statement released on Thursday following a meeting between US Treasury Secretary Henry Paulson, his deputy Robert Kimmitt, Singapore Finance Minister Tharman Shanmugaratnam and Government of Singapore Investment Corporation (GIC) deputy chairman Tony Tan.
The government of Abu Dhabi was represented by Mr Hamad Al Hurr Al Suwaidi, its executive council member, and Mr Hareb Masood Al-Darmaki, executive director of the Abu Dhabi Investment Authority, the world's largest SWF.
'Singapore and the UAE have long- established, well-respected funds, and are showing real leadership by joining with us,' Mr Paulson said in remarks after the meeting.
Singapore's Ministry of Finance said in a statement issued in the Republic yesterday that an open investment environment was 'critical' in a globalised economy.
'We will continue to contribute proactively to international efforts on developing voluntary best practices,' the statement said.
SWFs from several countries, including the GIC, recently invested in major Wall Street institutions such as Merrill Lynch and Citigroup, which had been rattled by trouble in the US sub-prime housing market.
Although the SWF investments had a stabilising effect, some others were seen as possible conduits of foreign political influence on Western companies and markets.
SWFs in China, Russia and some Arab countries are particularly viewed with suspicion.
In a press briefing following Thursday's meeting, Assistant Treasury Secretary for International Affairs Clay Lowery denied that the US administration was under 'pressure' from Congress to rein in SWFs.
But he said the newly formulated principles would clear the air and keep the door open for foreign investment.
Senator Charles Schumer, who has threatened 'legislative action' if SWFs do not adopt best practices 'soon', praised the latest efforts.
'Now, it is up to other sovereign wealth funds to follow this lead,' he said.
The IMF's governing board was due to meet in Washington yesterday to discuss the work agenda on SWFs.
It is likely to present a code for SWFs at its annual meeting in September or October.
