SWFs need more transparency

Norway says its pension fund will become world’s largest SWF

Sovereign wealth funds (SWFs) need to enhance transparency following a landmark agreement with the IMF two years ago in a bid to assuage fears about their operations in host countries, a Norwegian minister has said.

Jonas Gahr Store, Minister of Foreign Affairs, said a voluntary code of conduct announced by most world SWFs and their 2008 accord with the International Monetary Fund are only a first step towards more transparency.

In comments published by Oxford Business Group’s 2010 Abu Dhabi country report, Store said Norway’s SWF adopts a “very transparent” policy and that its pension fund is about to become the world’s largest SWF.

Store, whose country is a major oil exporter, was asked by OBG on calls on the world’s SWFs to be more tightly regulated and more transparent.

“I think in general there is need for more transparency… we have our way of doing it and we believe it is very transparent one,” he said.

“In many political systems, SWFs caused concerns because intentions are sometimes not declared,” he said, in a reference to pre-crisis furore in the West about the operation of SWFs and the need for them to become more transparent.

“I think that the debate has to be taken forward in financial institutions, in organization such as the OECD and in the United Nations conference so that we can reach a clear agreement on the modus operandi.”

Asked whether he thought the voluntary code announced by SWFs to work for enhanced transparency would alleviate those concerns, he said:”I think that’s the first step…the more we can do though the management of SWFs or with standards for corporate social responsibility the better….that will ultimately be better than enforcing by regulations.”

At a landmark meeting in Santiago two years ago, 26 global SWFs and the Washington-based IMF reached a declaration of principles about SWF practices. The agreement was finalized after a series of talks prompted by growing Western furor over the real activities of those funds.

In statements after the agreement, the Abu Dhabi Investment Authority (ADIA), one of the largest SWFs, said it had started plans to enhance disclosure of its operations, which are concentrated in foreign markets, mainly the West.

But ADIA stressed that transparency is also required by investment recipient countries as this would lead to better understanding with SWFs and allow them to play a more active role in global financial stability.

Store said Abu Dhabi, the main oil and gas producing emirate in the UAE, could benefit from Norway’s long experience in managing its oil revenue.

“What could be of interest to Abu Dhabi is to look at how we are managing the funds from oil and gas…the first point is regarding out creation of legislation on the management of a pension fund, which is now about to become the world’s largest sovereign fund,” the Minister said.

“This could attract notice from places like Abu Dhabi that are building up reserves…the second point is regarding the use of energy.”

Turning to Norway’s SWF, Store said his government had decided to “decouple” politics from the management of its pension fund resources.

“By decoupling, I don’t mean that we don’t set standards via the political channel, more that we don’t seek to promote foreign policy objectives by deciding to whom we sell oil and gas or where we invest the money,” he said.

“We have to find return investment standards and financial excellence in the way we invest the fund…for the financial crisis, I think that what these funds really do is act as strategic long-term investments.”

Store said Norway’s fund, like other SWFs worldwide, suffered from losses because of the 2008 market turmoil but added they were more than offset in 2009. “So we have the long-term generational perspective and we have institutions and mechanisms that can tell that story.”

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