Foreign funds agree to investment rules

U.S. Treasury Secretary Henry M. Paulson Jr. and the sovereign wealth funds of Abu Dhabi and Singapore agreed Wednesday to adopt rules for greater disclosure and to ensure the funds’ investments are for economic, not “geopolitical,” purposes.

Paulson and officials from the two countries said there was a “common interest in an open and stable international financial system,” according to a joint statement after talks in Washington. A set of “best practices will create strong incentive among SWFs and investment-recipient countries to hold themselves to high standards,” the statement said.

The U.S. is pushing the government-run funds and their target countries to agree to guidelines being drafted by the International Monetary Fund and the Organization for Economic Cooperation and Development. Paulson is aiming, in part, to head off protectionist sentiment in Congress against foreign investors.

“Singapore and UAE have long-established, well-respected funds and are showing real leadership by joining with us today,” Paulson said.

Paulson has expressed concern that a lack of transparency by the funds could fuel U.S. protectionism. The European Commission last month called for an international accord to limit the political influence of the state-owned capital pools, which have grown in number to about 40, managing between $2 trillion and $3 trillion.

The three countries agreed that investments must be based only on commercial grounds, and the funds should disclose more information and maintain strong risk management and governance controls. They also agreed that countries that receive investment shouldn’t set up protectionist barriers and should have consistent, nondiscriminatory investment rules.

“SWF investment decisions should be based solely on commercial grounds, rather than to advance, directly or indirectly, the geopolitical goals of the controlling government,” the agreement stated.

Sen. Charles E. Schumer (D-N.Y.) in a statement called the agreement “a very important development.”

“Transparency is what we are asking for from sovereign wealth funds,” he said. “Now it is up to other sovereign wealth funds to follow this lead.”