The United States and other countries must not demonise sovereign wealth funds as they come to the aid of troubled United States banks, some of the world’s biggest state-run investors said on Thursday.
A top US official denied the United States feared government-run investment funds, many of them based in Asia, the Gulf and Russia, but said their rapid growth demanded vigilance.
Sovereign fund managers at the World Economic Forum in Davos accused rich nations of labelling them as a potential threat with no evidence that they are destabilising the global economy, trying to wield political influence or threatening national security.
“It’s like the sovereign wealth funds are guilty until proven innocent,” said Mohamed Al-Jasser, vice governor of Saudi Arabian Monetary Agency. “Are we creating a straw man before we destroy it? We have to be careful about that,” he told a panel discussion packed with business and political leaders.
This year’s Davos gathering has been dominated by talk of the failings of the US financial system, and whether state-run investment funds pumping billions of dollars into troubled banks are essential to calm global markets.
On Wednesday, US President George Bush issued an order to clarify procedures for a US law strengthening national security reviews of foreign deals, while at the same time saying the United States welcomed foreign investment.
The order came after several foreign government-controlled funds from the Middle East and Asia injected tens of billions of dollars into major US banks, which badly need capital to write down losses related to US subprime mortgage investments.
The head of the Kuwait Investment Authority, which injected $5-billion into Citi and Merrill Lynch this month, emphasised all its investments have been commercially-driven and wealth funds are no different from other large investors.
“We look at the bottom line, we don’t look at anything else. We have been passive in all our investments,” said Bader al Sa’ad, managing director of KIA, noting that his fund had beeen a shareholder in German carmaker DaimlerBenz since 1969.
“We haven’t been active in any of our [holdings]. All this fear about sovereign wealth funds has no real basis … Why only sovereign wealth funds need to be regulated and not other large investors?”
Vigilance
The US administration official denied Washington feared the funds. “At this point, the history with sovereign wealth funds is they are generating higher investment returns without generating political controversy,” said US Deputy Treasury Secretary Robert Kimmitt.
“However, the growth in the size and the number of these funds is such that vigilance is required,” he told the panel.
Sovereign wealth funds’ assets are set to reach $12-trillion by 2015, almost 10% of all financial assets in the world.
“These are only an aspect of a much bigger phenomenon. This is an enormous shift of power and influence in the world. It is mainly story of rise of China and India,” Singapore’s foreign minister George Yeo Yong-Boon said, adding that the Asian giants should now join the world’s G7 and G8 policy discussion groups.
At top Gulf regulator expressed bafflement about the debate. “There is a lot of rhetoric at the moment. Nothing has actually happened,” said Phillip Thorpe, who heads the Qatar Financial Centre Regulatory Authority.
“As far as I can see there is transparency about transactions and there is no manipulation. So what is the problem? From regulatory perspectives I’m baffled about what concerns are,” said Thorpe, who is a former managing director at the UK Financial Services Authority. – Reuters
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