The world's most powerful sovereign wealth funds, the emerging market government-owned investors which have been snapping up businesses across the globe, have agreed a voluntary code of practice that bans them from making investment decisions on political grounds.
The best-practice agreement, hammered out under the auspices of the International Monetary Fund, promises greater transparency and accountability, plus new corporate governance rules aimed at assuaging concerns in the West.
All of the world's biggest sovereign funds, including those in the new powerhouse economies of China and the Middle East, have signed up to the rules, which will be announced formally next month. In all, 26 funds joined the working group, formed in response to their growing power in the world's developed economies.
Sovereign wealth funds hold an estimated $2-3trn (£1.1-1.7trn) of assets worldwide, a figure forecast to more than quadruple in the next five years as wealth flows into emerging market coffers thanks to exports to the West and oil revenues. Where once the funds typically invested in Western government debt, a shortage of investment opportunities and a desire to increase returns has pushed these funds into acquiring substantial property assets and companies.
In a speech in Chile last night, John Lipsky, deputy managing director of the IMF, said sovereign wealth funds have taken on a positive "shock-absorbing role" during the credit crisis, helping to recapitalise distressed financial companies and stepping in to replace traditional investors. However, their increasing prominence has raised national security questions, he said. "Although it is clear these concerns have little or no basis in the way SWFs have operated up to now, it is important to avoid negative perceptions or run the risk of a protectionist backlash."
The working group was co-chaired by Hamad al Suwaidi, undersecretary of the Abu Dhabi finance department and a director of the Abu Dhabi Investment Authority, which is one of the world's largest sovereign wealth funds.