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Kuwait questions wealth fund code

A code of conduct urging full transparency at state-backed sovereign wealth funds would fail to improve financial market efficiency, a top Kuwait Investment Authority (KIA) official said on Wednesday.

The International Monetary Fund (IMF) is drawing up principles for best practice in governance and transparency for the roughly 40 such funds from 34 countries.
Some politicians and companies have voiced worries that certain funds may have political rather than commercial motives.

But KIA Managing Director Bader Al-Saad said his fund already met most proposed standards on governance and transparency and that an official code of conduct would not help.

"Complete transparency would raise more questions than answers," he told a conference hosted by the Luxembourg government.

Al-Saad later told newswire Reuters it was too early to say whether the KIA would abide by or sign any code of conduct as the final content remained unclear.

But Russian Deputy Finance Minister Dmitry Pankin said the real reason behind a code was to prevent hostile takeovers in sensitive areas.

"It was a good example that Gazprom [would have] liked to buy some distribution grids in western Europe. It failed," Pankin told the conference.

Pankin also said it was too early to decide whether Russia would abide by an international code of conduct.

The KIA and others have invested huge sums in Wall Street banks hit by liquidity problems stemming from the US subprime mortgage crisis and the subsequent credit squeeze.

At nearly 55 years old, the KIA is the world's oldest sovereign wealth fund, managing about $225 billion.

"History has shown that all KIA investments are made purely on a commercial basis with no political bias. The KIA looks at the bottom line," Al-Saad said.

Gerard Lyons, chief economist at Standard Chartered bank, which counts wealth funds as clients and shareholders, said the sector would move into strategic assets such as buying intellectual property in the West.

Sovereign funds have swelled with revenues from rising prices of oil and other commodities and the IMF estimates the sector will grow from $2-$3 trillion now to $6-$10 trillion within five years.

Countries where wealth funds invest should have similar codes for hedge funds, private equity and pension funds as well to create a level playing field, Al-Saad said.

The EU has endorsed general principles to be included in a global wealth fund code of conduct. Al-Saad said the KIA met all requirements on governance and nearly all on transparency.

"The KIA is completely transparent. None of the recipient countries are able to explain how transparency with [the] size of assets under management will enhance global markets," he said.

David Wright, deputy head of the European Commission's internal market unit, denied the EU executive was trying to impose anything.

"We are not talking in Europe about mandatory regulation of sovereign funds," Wright said.

Jeannot Krecke, Luxembourg's economy minister, said there was no need for special regulation as EU merger rules allowed a state to protect legitimate interests.

"We must not fall into the trap of protectionism. The track record of SWFs has so far not been a problem. Without sovereign wealth funds we would have had chaos in the banking sector," Krecke said.

But there was a "clear need" for reciprocity as some countries where wealth funds were based were reluctant to open their economies to foreign investment, Krecke said.

Al-Saad said wealth funds accounted for only 5% of global assets under management.

Udaibir Das of the IMF's sovereign asset division told the conference that wealth funds were a "positive phenomenon" and that thrashing out best practices should be a collaborative effort involving the funds.

A clear-cut definition of what is an wealth funds has yet to be given though it would not contain state-owned companies, Das said.

"It's not a court, it's not a law, it's not a regulation. It will be a voluntary set of best practices," Das said. Sovereign funds may not be called on to sign any document, he added. (Reuters)

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