Telegraph: SEC issues warns over wealth funds

08 February 2008

The Securities and Exchange Commission has warned it is highly wary of sovereign wealth funds, branding the new wave of investors as potential traders of inside information. The SEC, the US's leading financial regulator, also accused such funds of being opaque in their governance structure and potentially difficult to regulate.

 

The attack could jeopardise further investments in the US by the funds, which have recently spent $75bn (£38.6bn) propping up the world's largest banks. The comments came from SEC enforcement director Linda Chatman Thomsen at a Congressional hearing into the US's increasing economic links with China.

 

Ms Thomsen alleged that there is potential for a sovereign fund to obtain "material non-public information" by virtue of its government powers and then use it to trade illegally. She also argued that regulating such funds will be difficult, because "if the government from which we seek assistance is also controlling the entity under investigation... co-operating could be compromised".

 

Likening sovereign funds, which control $2,000bn in assets, to hedge funds, Ms Thomsen said they were opaque in their governance and had substantial financial power in the markets due to their size. Ms Thomsen's views were partly echoed by Robert Dohner, the US Treasury's deputy assistant secretary for Asia, who said deals involving the funds may "raise national security concerns".

 

His comments recalled the attack on Dubai Ports World when it bought P&O. Dubai Ports eventually sold P&O's US port assets as a result of the protectionism it faced.

 

By James Quinn Wall Street Correspondent

© The Telegraph