Independent: EU to agree code of principles for sovereign wealth funds

26 February 2008

The European Union will agree tomorrow on "a set of principles for transparency, predictability and accountability" for Sovereign Wealth Funds, according to the president of the European Commission, José Manuel Barroso.

 

Mr Barroso said that the European approach would be the first step towards a global code. Mr Barroso added that there were "real concerns" about some funds. "We cannot allow non-European funds to be run in an opaque manner or used as an implement of geopolitical strategy," he said.

 

Two groups of nations have built up Sovereign Wealth Funds. Oil exporters in the Middle East, Norway and Russia have often run such funds for many years. The oldest, the Kuwait Investment Authority, was inaugur-ated in 1953. More recently, Asian nations such as China and Singapore have used SWFs to re-cycle their trade surpluses with Europe and the US. Total funds available to SWFs now total a little over $2,000bn, with estimates that in five years' time, that figure could be over $10 trillion. By comparison, global traded equities are valued at around $28,000bn, and global bonds at $25,000bn.

 

SWFs have made some not-able interventions in Western companies. The Kuwait fund has owned a 7 per cent stake in Daimler Benz for almost 40 years. More controversial rec-ent stakebuilding includes China's 10 per cent stakes in Blackstone and Barclays, and the proposed Singapore/Saudi refinancing of UBS.

 

Mr Barroso said the code would be discussed by EU leaders at a summit next month and the IMF and OECD will be asked to win international approval for the idea. The EU has said it will not introduce laws to regulate sovereign wealth funds unless efforts fail to create a worldwide voluntary code. The US has already legislated to restrict foreign investment in sensitive areas.

 

The EU Trade Commissioner Peter Mandelson said: "We don't want to close our markets to Chinese investment, but we have to be reassured that it is commercially motivated."

 

Most SWFs have expressed disquiet at the plans for a code, stressing their long-term investment strategy. But even Norway's fund, cited as a model of openness by Mr Barroso, has been involved in political controversy when its investment policy led to shares in Icelandic banks being depressed.

© The Independent