Dubai SWFs among top five for transparency

Sovereign Wealth Funds (SWFs) from Dubai are among the top five most-transparent funds that would be welcomed by global decision-makers to make investments in their host countries, according to a new study.

SWFs from Dubai rank No4 globally in terms of transparency in decision-making, No4 in terms of transparency in government influence on the funds, and No5 in terms of investment approval from key decision-makers in host countries, according to the Sovereign Brands Survey 2010, conducted by Hill & Knowlton and Penn Schoen Berland.

Nearly three-quarters of international decision-makers would approve sovereign investment coming from Dubai (73 per cent) and Abu Dhabi (72 per cent), according to the survey, which studies the attitudes of global broad elites to sovereign wealth as a concept, the reputation of host nations and SWFs.

The other SWFs among the list of top five approved for investment belong to Norway (88 per cent), Singapore and Hong Kong (83 per cent each) and Kuwait (74 per cent).

The Sovereign Brands Survey interviewed elites in seven markets on their views of 19 host countries and their SWFs, with Dubai funds also ranked among the top five that were the least likely to be motivated by political objectives. The report also identified that lack of familiarity with SWFs may lead to suspicion about the overall objectives of the funds.

Of the countries surveyed, the United States, the United Kingdom and India were least familiar and least favourable to SWF investment, while Egypt, Germany, Brazil and China were most familiar and most favourable.

Nearly all (98 per cent) of the respondents felt the reputation of the country directly influences the reputation of SWFs.

The key factors that lead to investment

The Sovereign Brands Survey looked in detail at the factors elites wanted to see if SWFs intended to invest in their country or industries. They identified transparency as essential, with 72 per cent citing this as very important, closely followed by accountability (68 per cent) and good governance (65 per cent).

Andrew Laurence, Chairman of Worldwide Corporate Practice Committee, Hill & Knowlton, said: "SWFs have become global players and need to play by the global rules of transparency and communication if they are to compete effectively for prime assets and investment positions. In some cases, they may also want to work with their host governments on improving their country's image."

In a reflection of the solid and sustainable revenue stream that SWFs from Abu Dhabi enjoy, funds from the emirate are the among the top five least prone to rapid and unpredictable change.

Abu Dhabi scored well in terms of strategic vision and performance, but there was a large, and somewhat unexpected variation, between the responses from the UK and the US. More than half (52 per cent) of UK elites thought that Abu Dhabi SWFs have strategic vision compared with only 21 per cent in the US, and 19 per cent more respondents from the UK attributed good performance to Abu Dhabi funds compared with the US.

Joel Levy, Chief Executive Officer, Penn Schoen Berland, Emea, said: "The economic downturn has created a real opportunity for sovereign wealth funds. The image of SWFs is largely determined by country reputation, and despite low familiarity and concerns over transparency, broad elites see SWFs as least likely to have contributed to recent market turmoil. This puts SWFs in a prime position to consider their positioning and reputation in contrast to other funds and asset classes."

Stephen Davie, Hill & Knowlton's Head of Financial Communications, Middle East, added: "Despite being considered one of the least volatile forms of investment compared to other sources of capital, it is surprising that low familiarity still drives low favourability towards this type of funding. The survey results show [that] working on their reputation and increasing awareness of their SWFs is a key step for Middle East countries looking to open up significant investment opportunities."

Davie believes that transparency will always be key for SWFs.

"The recession has spurred interest in SWF investment but concerns over transparency could obstruct investment strategies. Brazil (80 per cent), India (63 per cent) and China (78 per cent) are more favourable towards this form of investment since the global downturn. This interest is likely to accelerate as the global economic outlook improves, which is very good news for SWFs. But if countries cannot demonstrate transparency, this will become a block to significant new opportunities," he said.

Low knowledge but positive view about Abu Dhabi

The survey showed that knowledge of Abu Dhabi is still low. When elites were asked whether they thought Abu Dhabi shares their values, only one per cent of respondents from Germany believed this to be true, six per cent in the UK and 10 per cent in the US, compared with 72 per cent in Egypt.

Most countries have a positive view of investment from Abu Dhabi, and when asked about the areas they would like to see Abu Dhabi investing in, the respondents pointed to construction, leisure and finance. The areas where they would have more concern if Abu Dhabi tried to invest were the automotive, defence and healthcare sectors.

The data was very clear, especially when looking at government influence. This remains a barrier to accepting SWF investment according to the majority of elites. Abu Dhabi scored well in this area with 51 per cent of respondents comfortable that there is transparency in the government's influence on its funds.

But most elites believe that more can and should be done following the introduction of the voluntary Santiago Principles by the International Monetary Fund in September 2008, as poor adoption may be deterring consideration of certain asset classes amongst the host countries interviewed. For example, all were adverse to SWFs investing in their defence sectors, this view was felt most strongly by the UK (30 per cent), Germany (21 per cent) and Egypt (37 per cent), than Brazil (70 per cent), India (57 per cent) and China (54 per cent).

"SWFs have a vital role to play as economies start to pick up. To take advantage of this, they need to look closely at the way their image interacts with, and is influenced by, the national brand and fully understand which messages work in which market. If this happens, I think we will hear more about the positive role this important investment stream has to play," said Davie.

Economic recovery expected to accelerate interest

The economic recovery has spurred interest in SWFs, with 51 per cent of elites questioned saying they are more favourable towards this type of investment since the global downturn, compared to 14 per cent who are less favourable, and 36 per cent whose views have not changed.

Brazil (80 per cent), India (63 per cent) and China (78 per cent) are more favourable than the UK (39 per cent), the US (29 per cent), Egypt (38 per cent) and Germany (28 per cent), and their interest is likely to accelerate as the global economic outlook improves. Brazil, India and China are also the most cautious about SWFs investing in their countries with India (60 per cent) and China (97 per cent) expressing this view most strongly.

Fears persist SWFs may exert political influence

Concerns over transparency may be fuelling mistrust that SWF investment could be used to exert political influence and acquire strategic assets. Despite the Santiago Principles of 2008, poor adoption by the funds may be deterring consideration of this asset class amongst the elites.

SWFs from Russia (87 per cent), China (84 per cent) and Libya (74 per cent) were considered most likely to be motivated by political objectives, and Botswana (55 per cent), Singapore (50 per cent) and Norway (43 per cent) least likely.

All elites were adverse to SWFs investing in their defence sectors (45 per cent approval overall), this view felt most strongly by elites in the UK and Germany, where only 30 and 21 per cent, respectively, would approve. Some were more keen on SWF investment in their finance sectors – Brazil (84 per cent), India (73 per cent), China (78 per cent) and Egypt (95 per cent) – than the other counties surveyed. Overall, investment in the technology (86 per cent), construction (81 per cent) and energy (79 per cent) sectors was most welcomed.

Elites from the countries surveyed gave the lowest approval ratings to SWFs from Kazakhstan, Algeria, Nigeria, Brunei, Botswana and Libya investing in any of their countries' sectors. Along with Kazakhstan, Russia and China were also viewed as having SWFs that were more prone to rapid and unpredictable change than the other countries of origin, and that their investment activities were more likely to have contributed to market turmoil compared to other forms of investment.

Country's reputation determines SWF image

A country's reputation is a strong driver of the perception of its SWF (98 per cent of all elites interviewed believing this to be somewhat/very important), and appears to affect perceptions about that fund including its governance, transparency of financial records, performance over the past two years, and whether the SWF invests in a responsible manner.

SWFs from Norway, Singapore and Hong Kong scored highest across all these categories, and Libya, Algeria, Botswana and Nigeria the lowest. These rankings also translated into the country of origin that elites would most welcome investment from.

When asked which attributes they considered to be the most important in influencing their views of a country, being politically and economically stable (78 and 74 per cent), committed to the rule of law (69 per cent) and adhering to international regulatory standards (67 per cent) were considered key overall. Again, countries such as Norway, Singapore and Hong Kong rated highly across these factors and Libya, Algeria, Botswana and Nigeria were regarded less favourably.

Overall, softer factors such as sharing their country's values (43 per cent) and being tolerant of people from different countries, cultures and religions (50 per cent) were considered less important.

SWFs least likely to have contributed to turmoil

Overall, the investment activity of sovereign wealth is considered one of the least likely to have contributed to market turmoil (40 per cent thought it had) than other sources of investment such as hedge funds (65 per cent) and investment banks (65 per cent).

Only 16 per cent of elites in Germany thought SWFs had contributed, the lowest of all the markets interviewed, with Brazil (63 per cent), India (44 per cent) and China (61 per cent) believing they had more of a bearing. Germany (56 per cent) also considered SWFs to be more reliable than other forms of investment, unlike the UK (11 per cent), US (nine per cent) and India (10 per cent) who consider SWFs less reliable and were less trustful than the other countries.

Low familiarity drives low favourability towards SWFs

Despite being considered one of the least likely to have contributed to market turmoil compared to other sources of capital, low familiarity may drive low favourability towards this asset class. Of the countries surveyed, the US, the UK and India were least familiar and least favourable to SWF investment, while Egypt, Germany, Brazil and China were most familiar and most favourable. Overall, this audience was least familiar with sovereign wealth as a source of investment compared to the other five sources listed.

The key considerations for successful SWF investment

When asked which factors were most important in deciding whether they would approve of a SWF investing in their country, overall elites ranked transparency (72 per cent), accountability (68 per cent) and good governance (65 per cent) as key considerations. The SWFs' performance (56 per cent), social responsibility (55 per cent) and motivation (53 per cent) were considered less important overall by the respondents.

IN FOCUS

- UK

- US

- Egypt

- Brazil

- Germany

- China

- India

SWF nation

- Norway

- Singapore

- Hong Kong

- Malaysia

- Abu Dhabi

- Dubai

- Kuwait

- Qatar

- China

- Bahrain

- Oman

- Mexico

- Russia

- Libya

- Kazakhstan

- Brunei

- Algeria

- Nigeria

- Botswana

THE METHODOLOGY

Research for the survey was conducted among 1,064 broad elites in seven markets between January 15 and February 1, 2010. For the survey, broad elites were defined as influential members of society who are university educated, generally within middle to upper management, earning in excess of £50,000 (Dh265,515) or local market equivalent and with an active interest in national and international affairs in both politics and the business world. This group is commonly used within political campaigns as a proxy for the ruling class/ decision-makers.

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