EU pressure may see SWFs look to Asia

SWFs from around the world control assets worth more than $2.5 trillion – but they are coming under growing pressure from the European Union (EU) to improve corporate governance standards.

“There are concerns about transparency and proposals for a code of conduct for SWFs from the UAE and elsewhere in the Middle East,” said Nick Savastano, Associate Director of Invesco Asset Management in Dubai. “But most western governments would not wish to see the funds looking towards Asia rather than Europe.”

He was speaking after Dubai World Chairman Sultan Ahmed bin Sulayem told the BBC that harsh measures such as the EU’s code of conduct initiative were dangerous for countries and companies in need of investment.

Savastano, whose company is part of one of the world’s largest independent investment groups, said: “If the SWFs are not looking at the US and European markets for investment, Asia is a natural choice. The reality is that there are concerns about the transparency of SWFs. However, most European organisations and governments would not like to see Arab SWFs looking towards Asia. If European governments make life difficult for them they will naturally look for opportunities elsewhere.”

Ashok K Gupta, CEO of GCC Operations at India’s Bank of Baroda, said good investment opportunities could be found in his country and in China. And he said a withdrawal from Europe by the SWFs could be profitable because the rate of return from Asian emerging markets was eight to 10 per cent compared with one or two per cent in European and American markets.

“European and US markets are already developed and the return on investment is low,” he added. “In India the rate of return is very high – it is a growing country with a lot of investment opportunities. There is more growth potential in emerging markets and the high rate of return is attracting a lot of foreign funds to India.”