Progress is being made in developing a code of best practices for sovereign wealth funds, David McCormick said in a testimony before the House Committee on Financial Services. “Attention to sovereign wealth funds is inevitable given that their rise clearly has implications for the international financial system”, he said. “Sovereign wealth funds bring benefits to the system but also raise potential concerns.”
Next to legitimate national security concerns and possible adverse effects on financial stability, the Treasury is also considering non-national security issues related to potential distortions from a larger role of foreign governments in markets. “Through inefficient allocation of capital, perceived unfair competition with private firms, or the pursuit of broader strategic rather than strictly economic return-oriented investments, sovereign wealth funds could potentially distort markets”, McCormick noted.
“It is my view that protectionist sentiment stems partly from a lack of information and understanding of sovereign wealth funds, which in turn is partly due to a lack of transparency and clear communication on the part of many of the funds themselves. “
The Treasury is working to ensure "appropriate international response," balance "legitimate areas of concern" and make sure that the U.S. and other countries remain open to investment, he said.
“We have proposed that the international community collaborate on the development of a multilateral framework for best practices”, McCormick noted. “Sovereign wealth funds themselves are increasingly aware that the increase in the number and size of these funds has, rightly or wrongly, raised reputational issues for them all.“
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