US, Adia and GIC agree on wealth funds

The US Treasury Department said it agreed with Abu Dhabi and Singapore on a set of principles for sovereign wealth funds that specifies politics should not influence their decisions.

The foreign-controlled funds, many based in the Middle East, have aroused US lawmakers’ concern as they have poured billions of dollars into large stakes in Wall Street firms and other businesses and fanned fears the United States was losing control of its destiny.

But Treasury Secretary Henry Paulson, in a statement after meeting government officials from Abu Dhabi and Singapore as well as some individual funds, said they were welcome in the United States and set out principles that also guide the behaviour of countries that are getting the funds’ money.

Paulson said the principles the Treasury made public should guide efforts by the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development, (OECD) which are also working on developing a set of voluntary “best practices” for the funds.

The first principle said funds should make investments “solely on commercial grounds, rather than to advance political goals of the controlling government”.

Countries that are getting the money “should not erect protectionist barriers” to foreign investment, according to another principle that reflects the Bush administration’s determined bid to ward off hurdles, especially at a time when money is badly needed.

The Government of Singapore Investment Corporation (GIC) and Abu Dhabi Investment Authority (Adia) have invested billions of dollars in troubled US bank Citigroup in recent months.

The Abu Dhabi fund invested $7.5 billion (Dh27.5bn) in Citigroup in November and the GIC invested $6.8bn in the US financial group in January.

Sovereign fund analysts estimate that Adia has around $900bn in assets.

The three governments agreed that sovereign wealth funds’ investment decisions should be based on commercial grounds, rather than the geo-political strategies of a controlling government, Paulson said.

Paulson and Deputy Treasury Secretary Robert Kimmitt met with Abu Dhabi Executive Council Member Hamad Al Hurr Al Suwaidi and Singapore Finance Minister Tharman Shanmugaratnam as well as executives from sovereign funds Adia and GIC.

The Treasury has been pressing since last autumn for the IMF to develop the “best practices” guide. The funds have become increasingly active in buying US assets with growing foreign exchange reserves from oil and international trade. The funds should have effective internal controls and strong risk management systems, the Treasury said. Sovereign wealth funds now have assets between $1.9 trillion to $2.9trn, it said. (Agencies)