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US to respond on sovereign funds today

By Ryan Harrison



A US Treasury response is expected on Thursday over plans to develop a controversial new code of practice to regulate investment decisions by sovereign wealth funds, Emirates Business has learned.

Following a letter from the Abu Dhabi Government to Western finance officials outlining a set of principles that it says guides its investing, a US Treasury comment on the issue is expected to be posted on its website.

The US Treasury, International Monetary Fund (IMF), European Union and OECD are negotiating with a number of funds to develop a code of practice that would provide more clarity in the funds’ investment criteria.

A source close to the negotiations said: “There will be developments out of the United States [today] that we need to keep our eye on. Watch the Treasury website for further developments.”

Abu Dhabi’s publication of its principles for investing addressed Western government’s fears that foreign countries may use their funds to control or influence strategic industries in ways that could be detrimental to national interests.

As funds such as the Abu Dhabi Investment Authority (Adia), with assets estimated at up to $900 billion (Dh3.3 trillion), snap up foreign assets, officials in the United States and Europe have called for more transparency.

In the letter, Yousef Al Otaiba, Abu Dhabi’s director of international affairs, writes that the emirate “has never and will never use its investments as a foreign policy tool”. Instead, Abu Dhabi entities “have always sought solely to maximise risk-adjusted returns,” it said.

“The leading investment organisation, Adia, has operated predominately as a passive investor, with the overwhelming share of its portfolio consisting of minority stakes in companies that have included no control rights, no board seats and no involvement in the management or direction of the receiving companies,” he adds.

The letter was also sent to the finance ministers of the other Group of Seven industrialised nations, the IMF, the World Bank, the Organisation for Economic Co-operation and Development, and the European Commission.

The Abu Dhabi Government has said funds such as Adia are independent commercial entities with their own investment committees and board of directors.

Although Abu Dhabi is the biggest shareholder in Adia with voting rights, it has no influence on day-to-day activities, a person involved in this process told Emirates Business.

The principles that Abu Dhabi has laid down cover all its investment vehicles, including Mubadala Development Company, which owns a 7.5 per cent stake in private equity firm the Carlyle Group; the Abu Dhabi Investment Company; and Taqa, which is home for the Abu Dhabi National Energy Company.

The IMF, which has been asked to produce a draft set of voluntary best practices for sovereign wealth funds, said it had not been consulted on the US Treasury’s anticipated response.

An official at the IMF told Emirates Business that it would reveal its research and draft code of practice in April at a gathering of its decision-making bodies.

“The Central Bank’s finance ministers will join us in Washington as part of the agenda for the voluntary code of practice in April,” the spokesperson said.

“The IMF has been asked by the G7 to produce a draft set of voluntary best practices and we will provide this status report to the International Monetary and Financial Committee meeting in April,” he added.

The IMF will also present a draft of its voluntary best practice, developed in conjunction with the OECD.

IMF is currently polling sovereign wealth funds asking for feedback on various investment issues.

Meanwhile, the Singapore Government has indicated this week that it is willing to adopt a new code of practice for sovereign wealth funds if Western countries commit to not blocking any future acquisitions.

Laurence Lien, director of investment for the Ministry of Finance, which owns Singapore’s two funds, told The Times of London on Wednesday: “We agree that adequate disclosure would be beneficial and appropriate and we support the IMF’s development of a code of practice. We are actively contributing to this discussion but we also want to make sure this is a voluntary arrangement.”

He added: “We recognise the concern that sovereign wealth funds may be used for political ends, but we hope that this is not part of a protectionist agenda to close markets. To put in protective barriers would be damaging to the world economy.”

Singapore’s two sovereign wealth funds are among the largest in the world with combined assets of more than $500bn.

Singapore’s GIC fund actively manages the nation’s reserves and has assets estimated at more than $330bn.

The fund bought a nine per cent stake in UBS, the Swiss bank, for $14.5bn in December.


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