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E.U. formulating guidelines for sovereign funds investors

LONDON: The European Union has announced measures to “strip away” some of the secrecy surrounding the investment of Sovereign Wealth Funds (SWF), mainly by West Asian oil producers, China and Russia.

Precise data on the quantum of such funds is not available but according to informed sources, they are nearly $3 trillion. SWF assets have been boosted by the record high oil and gas prices recently. Lobbying for SWF investment has begun in earnest by nations. The European Union is a serious contender. The strategy of E.U. institutions is to ensure that the bulk of the SWF investments are deployed in the region.

The E.U. is deliberating the “ground rules” for investment of SWF assets. In recent weeks, such funds have bailed out several major Western banks, financially bruised by the so-called “sub-prime mortgage crisis” on both sides of the Atlantic — particularly in the United States.

Western banks had lent generously to the sub-prime asset value mortgage market. The crisis was triggered when real estate pries fell by nearly one-fifth. Key American and European banks’ exposure to this fast declining asset value has given rise to a crisis of confidence, not witnessed since the Great Depression of the 1930s. The deployment of SWF in Europe has raised concerns at various levels. Responding to these fears, President of the European Commission José Manuel Barroso said: “We cannot allow non-European funds to be run in an opaque nature or used as an implement of geopolitical strategy.” It is in this background that the European Commission is setting principles of transparency, predictability and accountability for investors who are bringing in SWF money as well as for recipient nations. The E.U.’s attempt is to fathom the volume of SWF assets coming into the region. It also wants to establish how and where such assets will be deployed.

European leaders discussed the SWF issue at their January summit and will examine the issue further at their meeting in Brussels next month.

Norway, a major North European oil producer, is seen as a “role model” adhering to ethical and transparent norms in deployment and investment of its oil funds. The Arab oil producers, China and Russia are rated as major players. China has set up a $200-billion fund, managed by China Investment Corporation, which has formulated a Charter of Principles that state that it will be run on commercial lines.

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