22 February 2008

FT: Wealth fund code of conduct proposed

The world’s sovereign wealth funds will be asked to accept a voluntary code of conduct governing their investment activities under proposals poised for approval next week by the European Commission.

Peter Mandelson, the European trade commissioner, said the code would set out basic standards of governance and transparency for the funds.

Similar voluntary guidelines are being prepared by the International Monetary Fund, which estimates there are more than 20 big state-backed funds that control between $1,900bn and $2,900bn in global assets.

Sovereign wealth funds from Abu Dhabi, China, Saudi Arabia and Singapore have injected billions of dollars into some of the world’s biggest investment banks since November.

The funds provided vital liquidity for world financial markets but many politicians and elements of public opinion in the US and Europe remain worried about the implications of letting the funds acquire stakes in powerful companies and business sectors.

EU officials said the Commission’s proposals, which are due to be approved on Wednesday, would contribute to international efforts to set a framework for improving the openness and accountability of the funds.

The proposals represent the 27-nation European Union’s first attempt at addressing the funds’ activities at EU level. They aim to balance concerns over the alleged lack of transparency and political motivations of certain funds with a message about Europe’s openness to foreign investment.

“We should be positive, not paranoid, about the operations of sovereign wealth funds,” Mr Mandelson said. “If the funds refuse to accept a voluntary code of conduct, pressure may grow for laws obliging them, at the least, to disclose their investments. A voluntary approach is preferable to a statutory one.”

EU finance ministers are expected to discuss the Commission’s proposals on March 4.

By Tony Barber in Brussels

© Financial Times