EUROPE/NORWAY - EU Trade Commissioner Peter Mandelson has warned Sovereign Wealth Funds (SWFs) not to respond with "resentment or indifference" to growing concerns about the impact of their investments on recipient countries.

Speaking at a conference hosted by the Organisation for Economic Co-operation and Development (OECD), Mandelson claimed SWFs "simply cannot afford to underestimate how important reassurance about systems of transparency and governance is, in ensuring that unfounded suspicion doesn't mushroom into a protectionism that is in nobody's interest".

He suggested although state-backed investment did raise important questions about foreign influence and control, "these were often overstated" as European states "already had the necessary legal means to police inappropriate investment in their economies".

That said, Mandelson reiterated the European Commission's recent recommendations for a global code of conduct - developed in partnership with the funds themselves - could provide "political reassurance" to enable SWFs to operate beyond suspicion".

He claimed the code would not be an attempt to "restrict their freedom of movement unfairly", and instead suggested it would only mean "signing up to doing what they already do and not doing what they freely acknowledge would be a disaster for them".

In his speech, Mandelson admitted "there is nothing inherently suspicious about sovereign wealth, or the desire to invest it productively", but suggested the debate around SWFs may have escalated over the past six months because the "biggest new funds are in economies which have raised some sensitivities in our own politics".

In particular, he argued Chinese investment vehicles and the Russian stabilisation fund "are new investors, with huge reserves, backed by governments with mixed democratic credentials, substantial foreign policy projection and no track record as investors".

He told delegates Europe has "no interest" in a protectionist approach, and claimed there was no need for "new regulations or new laws", just the "reassurance" of a voluntary code which sets "basic standards of governance and transparency", such as periodic reporting, and publication of business plans.

At the same time, Tore Eriksen, secretary-general of the Norwegian Ministry of Finance - which has overall responsibility for the Government Pension Fund - Global - stated the value of the Norwegian SWF is expected to reach $600bn by the start of 2012.

Despite this, he claimed the projected steep rise in public pension expenditure will require "tighter fiscal policy" in a few years' time, so the fund invests in a wide range of financial instruments outside of Norway, to achieve "broad diversification and good investment returns with moderate financial risk".

The secretary-general confirmed while the fund has the majority of its investments in OECD countries, it does have approximately $15bn invested in non-OECD countries, and he said the Ministry of Finance is currently considering an expansion of the benchmark portfolio for equities to include an additional 14 non-OECD countries - although this will not be decided until June. 

That said, Eriksen claimed the fund has a "positive influence" on international financial markets, as it has "a long investment horizon, no leverage and no claims for the imminent withdrawal of funds".

In addition, the fund, which from 2007 has published full details of its voting record, already has "a high degree of transparency" and Eriksen agreed with Mandelson when he suggested "Increased transparency on the part of the funds" is "important to alleviate some of the concerns that have been voiced in the debate".

He also admitted a "cooperative effort between investors and recipient countries" is key to maintaining an open investment climate, and confirmed Norway would "contribute actively and constructively" in developing guidance to stop recipient countries imposing "unnecessarily restrictive policy responses to SWF investments".

However, he warned Norway could see no cause for introducing regulations which would "restrict the present investment activities of our fund", as Eriksen pointed out limiting the investments of oil-related SWFs would mean the "relative attractiveness of saving in the form of keeping oil in the ground would increase", which could indirectly destablilise the oil market.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

Topics