The Government is to support calls for reforms of sovereign wealth funds, chancellor Alistair Darling indicated yesterday, marking a major departure from his previous laissez-faire attitude toward the state-controlled funds that have become aggressive buyers of UK companies.
The Chancellor will tomorrow meet other finance ministers of the Group of Seven industrialised nations, with the US expected to table a proposal calling for greater transparency of the massive funds controlled by countries such as China and Qatar. Mr Darling is expected to back the move, as are the ministers from Japan, Canada and Germany.
Until now Mr Darling has refused to join other governments, principally the US, in calls for regulation and transparency. Yet speaking on the rising influence of SWFs yesterday, a Treasury spokeswoman said: "Investment activity requires commercially motivated investors, and appropriate regulatory and competition frameworks to ensure well-functioning markets and to prevent market dominance abuses."
She added: "It remains in the interest of both SWF holding countries and recipient countries... to continue to improve standards of governance and transparency, and promote fair investment frameworks that are based on the OECD's principles of proportionality; transparency and predictability; and accountability."
SWFs, set up to invest excess state revenues from record oil and commodity prices and foreign exchange reserves, have grown to control $2.2trn (£1.1trn) around the world. Analysts are expecting this to rise by as much as six-fold over the next decade. Yet some of them, including the Abu Dhabi Investment Authority, the world's largest with an estimated $625bn to spend, are very opaque. Worries about their influence and motivations are growing in the UK, which has become a primary hunting ground. Nearly half of the London Stock Exchange is now owned by Dubai and Qatar. A fund backed by the SWF of the latter is close to launching a takeover of supermarket giant J Sainsbury.