Sovereign wealth funds hostile to international code of conduct

Click to follow
The Independent Online

Some of the world's largest sovereign wealth funds made it clear yesterday that there was little chance of their agreeing to an international code of conduct to govern their activities, as has been urged on them by the IMF, the World Bank, OECD and a number of Western governments.

Their growing power – they now command about $2.5trn (£1.25trn) – has made them a high-profile topic here at Davos. Voices from the US, which has set up a body to review investments made by SWFs – largely the Gulf states, China, Singapore, Norway and Russia – have been particularly loud in calling for more regulation, even though SWFs from the Gulf states have been recapitalising some of America's largest financial institutions, with few objections being raised. The French and German governments have raised more general and fundamental objections to the activities of SWFs.

Speaking at the World Economic Forum in Davos, the officials from Russia and Kuwait were especially hostile to a code. The Russian Deputy Prime Minister and Finance minister Aleksey Kudrin rejected calls for SWFs to be curbed, rejecting protectionism and arguing that "these funds are for the security of future generations". "They are long term and not speculative. They play a very positive role on the global market. Any concern about the political underlining of these funds is exaggerated."

Bader Al Sa'ad, managing director of the Kuwait Investment Authority (KIA), said: "The KIA has been operating for 55 years and has never made a political decision. We look to the bottom line." Mr Al Sa'ad pointed to some very well-established holdings such as the investment in Daimler-Benz dating back to 1969 and that in BP made in 1976.

Stephen Schwarzman, chief executive of the Blackstone Group whose largest shareholder is a fund run by the Chinese government, said: "Our experience with SWFs is that they are smart, long-term, highly professional. All they are looking for is higher rate of return."

Nonetheless, the former US treasury secretary Larry Summers wondered why, if the SWFs had not yet encountered many problems, there was so much resistance to the idea of more transparency and accountability. Mr Summers identified three possible problems associated with SWFS. First, corporate governance, which Mr Summers suggested that if SWFs are as passive in their investment policy as they say, they may be colluding with complacent managements. Second he pointed to the issue of "multiple motive" – the possibility that an SWF shareholder in a Western airline, for example, might exert their influence to make the airline take uneconomic flights to the capital of the SWF's home nation. Third, he warned about "general politicisation" where a SWF that was involved in a hedge operation against another nation's fixed exchange rate would find itself under intense pressure to alter the policy. He cited the Norwegian SWF's involvement in the Icelandic banking system.

Kristin Halvorsen, the Norwegian Finance minister, complained about the attitude of EU and US governments: "They don't like us, but they need our money."

Read Sean O'Grady's Davos blog: