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US, Abu Dhabi, Singapore urge calm over sovereign wealth funds

The three countries unveil a voluntary set of principles warning against the creation of protectionist barriers but also for greater transparency among sovereign wealth funds

US Treasury Secretary Henry Paulson has agreed a set of principles governing sovereign wealth funds after meeting today with Abu Dhabi and Singapore government officials.

In an effort to head off a political backlash over the growing influence of sovereign fund investments, Paulson unveiled an eight-point voluntary code for foreign-controlled funds, as well as country recipients, insisting the US was open for such business.

“The US welcomes sovereign wealth fund investment,” Paulson said after meeting with Hareb Masood Al-Darmaki, the director of Abu Dhabi’s wealth fund, the Abu Dhabi Investment Authority, and Singapore’s GIC deputy chairman Tony Tan. Abu Dhabi executive council member Hamad Al Hurr Al Suwaidi and Singapore finance minister also attended the meeting.

Paulson said the set of principles supported work by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) in trying to develop a global voluntary code of conduct.

The document unveiled today included a call to sovereign wealth funds to operate purely on commercial grounds rather than “geopolitical goals”, and for countries receiving wealth fund investment not to “erect protectionist barriers”.

Legislators in California are currently attempting to prevent the country’s two largest pension schemes, the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), from investing in private equity funds and firms partially or wholly owned by sovereign wealth funds where the government participated in alleged human rights abuses.

The legislation would bar the $240 billion and $173 billion plans’ ability to invest in future funds operated by the likes of Carlyle and Apollo. In 2007, two arms of the Abu Dhabi government bought stakes in Apollo Management and Carlyle. Reports have estimated funds from rich oil-producing Middle East countries have invested about $18bn in Europe and the US during the past four months alone.

Today’s meeting though was an attempt to head off such legislation, and ensure sovereign wealth funds continue to invest in the US. “Singapore and the United Arab Emirate have long-established, well-respected funds and are showing real leadership by joining with us today,” Paulson added.

The sovereign wealth fund code also urges funds to become more transparent in their financial reporting and investment objectives; to have strong governance structures; for sovereign wealth funds and the private sector to compete fairly and for recipient countries not to discriminate among investors. Restrictions imposed over security concerns, the code said, should be “proportional to genuine national security risks raised by the transaction.”