Yesterday’s announcement that the U.S. has reached an agreement with Abu Dhabi and Singapore on a set of principles for investment by sovereign wealth funds (SWFs) is being hailed as an important first by Treasury officials in Washington.
In the wake of highly-publicized concerns about the transparency of such funds earlier this year, officials hope that this agreement will put those concerns to rest and encourage wealthy foreign governments to keep investing. There is also a hope that yesterday’s agreement will serve as a blueprint for similar arrangements with other funds and for similar voluntary arrangements set out by the IMF and OECD.
“It’s the first time to my knowledge that there’s been a set of principles on this type of issue that include both sovereign wealth funds and a recipient country,” Clay Lowery, US Treasury Assistant Secretary for International Affairs, told the Financial Times.
“In terms of transparency and disclosure what you saw today was two funds that are basically willing to step up and say: ‘We believe there should be greater information and disclosure,’” he said. He emphasised the two countries’ commitments in areas such as institutional arrangements and decision-making structures and financial information, notably asset allocation and benchmarks.
In the midst of financial difficulties at home and a possible recession, the Bush administration recognizes the crucial importance of continued foreign investment, much of which comes from SWFs. Abu Dhabi and Singapore have the world’s largest two funds, each worth hundreds of billions of dollars.
There has been a growing concern among U.S. politicians and analysts that foreign governments with large SWFs could wield the power of their investments in the U.S. in ways that could prove harmful to American national interest. Yesterday’s agreement seeks to address those concerns, stipulating that SWFs should make investments “solely on commercial grounds, rather than to advance directly or indirectly the geopolitical goals of the controlling government.”