What's This, the SWF Magna Carta?

♠ Posted by Emmanuel in at 3/22/2008 03:58:00 PM
Two things: the Financial Times reported earlier on that SWFs from the UAE and Singapore have acceded to US requests on their conduct so as not to invite protectionist ire or government scrutiny Stateside. However, there are more forthcoming guidelines to be put out, especially by the IMF. Here is part of the official statement from the US Treasury site:

Sovereign wealth funds (SWFs) represent government-owned investment vehicles, funded by foreign exchange assets and commodity export receipts, etc., which invest internationally for financial objectives such as stabilization and intergenerational savings.

The United States, Abu Dhabi, and Singapore, being a group of nations with SWFs and a country receiving investments from SWFs, have a common interest in an open and stable international financial system. We support the processes underway in the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) to develop voluntary best practices for SWFs and inward investment regimes for government-controlled investment in recipient countries, respectively. International agreement on a set of voluntary best practices will create a strong incentive among SWFs and investment-recipient countries to hold themselves to high standards. We hope that the IMF and OECD's work can build upon these basic principles:

Policy Principles for Sovereign Wealth Funds (SWFs)

SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government. SWFs should make this statement formally as part of their basic investment management policies. [What happened to point #1?]

2. Greater information disclosure by SWFs, in areas such as purpose, investment objectives, institutional arrangements, and financial information – particularly asset allocation, benchmarks, and rates of return over appropriate historical periods – can help reduce uncertainty in financial markets and build trust in recipient countries.

3. SWFs should have in place strong governance structures, internal controls, and operational and risk management systems.

4. SWFs and the private sector should compete fairly.

5. SWFs should respect host-country rules by complying with all applicable regulatory and disclosure requirements of the countries in which they invest.

Policy Principles for Countries Receiving SWF Investment

1. Countries receiving SWF investment should not erect protectionist barriers to portfolio or foreign direct investment.

2. Recipient countries should ensure predictable investment frameworks. Inward investment rules should be publicly available, clearly articulated, predictable, and supported by strong and consistent rule of law.

3. Recipient countries should not discriminate among investors. Inward investment policies should treat like-situated investors equally.

4. Recipient countries should respect investor decisions by being as unintrusive as possible, rather than seeking to direct SWF investment. Any restrictions imposed on investments for national security reasons should be proportional to genuine national security risks raised by the transaction.

However, Singapore now says US Treasury concerns are overblown for a number of reasons. First, Singapore disputes that Temasek, one of its two SWFs, is really an SWF per se for obscure technical reasons I think few buy. Actually, there are several ways SWFs are funded which do not mean they are not SWFs. Second, Singapore claims that its procedures already comply with what the US Treasury is asking for. Actually, research exists pointing out this same thing: Temasek is already quite transparent in a neoliberal sense, but it's the other Singaporean SWF, GIC, that isn't quite transparent. Still, the message seems to be one of Singaporean indifference at US intrusion than the tone of getting SWFs' paymasters to acquiesce to American demands. From Bloomberg:
An agreement by government-run funds of Abu Dhabi and Singapore to increase transparency won't shed more light on Temasek Holdings Pte's $118 billion portfolio, because the company said it already meets disclosure guidelines.

U.S. Treasury Secretary Henry Paulson said yesterday that funds including the Government of Singapore Investment Corp. agreed to adopt rules for greater disclosure. Temasek, owned by Singapore's finance ministry, said it already provides more information than government-run funds.

``Temasek is not a sovereign wealth fund,'' spokesman Mark Lee said by telephone today. ``Temasek has to sell assets to raise cash for new investments and doesn't require the government to give approvals.''

The U.S. is pushing sovereign wealth funds to adopt new disclosure rules because of concern that a lack of transparency could spark a rise in protectionism. The European Commission has called for an international accord to limit the political influence of the state-owned capital pools, which have grown in number to about 40, managing between $2 trillion and $3 trillion.

Singapore's GIC and counterparts in China, Russia and Dubai have deployed record central bank reserves of as much as $2.9 trillion, buying stakes in U.S. financial services companies. GIC invested in UBS AG and Citigroup Inc. in the past three months as banks sought to replenish capital after the value of their U.S. subprime mortgage-related assets plummeted.

In January, Temasek paid $6.2 billion for a 9.4 percent stake in Merrill Lynch & Co. after the largest U.S. brokerage had the biggest loss in its 93-year history because of writedowns on subprime mortgages and related securities.

``These types of groups play a more important role because of their investments in large financial institutions,'' said David Cohen, a Singapore-based economist with Action Economics. ``They will be under pressure to move towards greater disclosure to show that their investments are business transactions and not politically motivated.''

Temasek, set up in 1974 to manage S$350 million ($252 million) of Singapore's state assets, now owns stakes in ICICI Bank Ltd. of India, Bank of China Ltd. and DBS Group Holdings Ltd., Southeast Asia's biggest bank.

The company, which has about S$164 billion ($118 billion) portfolio of assets, started publishing an annual review of its investment strategy and performance in 2004, while GIC first publicly disclosed details on its performance in 2006.

``Temasek discloses a lot more than GIC and always has a strong sense of corporate governance,'' Lee said. Paulson's statement ``will not any impact,'' he said. The company seeks approval from a board consisting of independent directors and a representative from the Ministry of Finance, its only shareholder, Lee said...

``Temasek is ultimately controlled by the government and it is not a private organization,'' said Cohen of Action Economics. ``Temasek has many similarities to GIC.''

The company's net income fell 29 percent to S$9.1 billion in the year ended March 31, 2007, Temasek said in its annual report released Aug. 2. Total assets under management rose 27 percent to S$164 billion after Temasek bought shares in companies including Standard Chartered Plc, and is the U.K. bank's biggest investor.

Temasek has given a return on investment of more than 18 percent by market value since its inception more than three decades ago, according to the company's most recent annual report.

Paulson said yesterday the three countries agreed that all investments must be based only on commercial grounds, and the funds should increase the disclosure of information and make sure they have strong risk management and governance controls. They also agreed that countries that receive investment shouldn't set up protectionist barriers and have consistent, non-discriminatory investment rules.