EU issues sovereign wealth guidelines

The European Commission has issued a voluntary code of conduct for sovereign wealth funds.

The commission hopes the code will serve as a template for governance and transparency standards for sovereign wealth funds to be agreed at a wider international level beyond the EU.

Commission President José Manuel Barroso said in a statement: “Sovereign wealth funds are not a big bad wolf at the door. They have injected liquidity and helped stabilise financial markets. They can offer reliable long-term investments our companies need. To ensure this, we need global agreement on a voluntary code of conduct – it is to this end that we make a contribution today.”

Barroso said he would propose European legislation if he could not achieve results by voluntary means. “On international financial markets in general, we are asking EU leaders to confirm loud and clear that Europe will take an effective common approach to tackling the weaknesses exposed by the recent turmoil.”

The commission recommends sovereign wealth funds clearly allocate and separate responsibilities in internal governance structures. The funds should issue an investment policy that defines their overall objectives. Funds should have autonomy from their sponsor governments and they should publicly disclose the general principles of their relationship with government authorities.

Nicole Kar, a partner at UK law firm Linklaters, said: “This is a softly, softly approach by the European Commission which is at pains to recognise the value these firms bring,”

It may be the case that the UK initiative on transparency for private equity, the Walker Report, is superseded by the EU initiative, Kar said. “There will be a global push on sovereign wealth funds, while the UK has been particularly focussed on the private equity initiative and the two streams may come together.”

Earlier this month the Australian government published voluntary guidelines for sovereign wealth funds.