Singapore delegation - Ministry of Finance & US officials - led by Mr Clay Lowery, assistant secretary for international affairs - also met executives from the Abu Dhabi Investment Authority, the world's biggest SWF. Its assets of about US$900 billion ( S$1.26 trillion). According to Mr David McCormick, Singapore's and Abu Dhabi's SWFs are some of the most mature, well-known and credible sovereign funds.
The meeting in Abu Dhabi, on Thursday, 22 February 2008, was part of "delicate global negotiations" to draft rules that will oversee the behaviour of SWFs, without discouraging them from investing in the US, Canada and Europe.
What are the concerns, such as transparency,over sovereign wealth funds and its possibility that foreign governments may come to own substantial shares in domestic companies ?
Will sovereign wealth funds rule the world ?
What exactly is Sovereign Wealth Funds ?
European Commission is expected to propose its own set of ground rules. IMF, was not involved in the talks, wants to help the funds reach consensus on issues such as transparency, governance, disclosure and fund organisation.
SOVEREIGN wealth funds, assets held by governments in another country's currency. When a country, by running a current account surplus, accumulates more reserves than it feels it needs for immediate purposes, it can create a sovereign fund to manage those "extra" resources.
Currently, more than 20 countries have these funds, and half a dozen more have expressed an interest in establishing one.
Still, the holdings remain quite concentrated, with the top five funds accounting for about 70 percent of total assets. Over half of these assets are in the hands of countries that export significant amounts of oil and gas. Norway has a large sovereign fund, as do places as disparate as Alaska, Canada, Russia, and Trinidad and Tobago. About one-third of total assets are held by Asian and Pacific countries, including Australia, China, and Singapore.
Asian and Middle Eastern governments are putting piles of cash they've earned from higher oil prices and burgeoning trade supluses into U.S. companies through so-called sovereign wealth funds. The sharp jump in the level of their investing is raising concerns, including whether some investments are made for political considerations, such as access to sensitive technology, rather than for financial returns. Negative publicity ensued after several funds purchased stakes in major U.S. and European banks earlier this year.
These funds are going to have the ability to buy any global company, to create panic in markets if they move too precipitously, even to dwarf the political clout of international financial institutions. They can no longer be ignored.
As foreign government-run funds increasingly invest in U.S. companies through unregulated private-equity or hedge funds, they are attracting a lot more of the very kind of political attention they wish to avoid.
What is curious here is that both comments (and other similar discussions) overlook the fact foreign governments (China, oil states, and so on) already own huge assets in the U.S. and other advanced economies--in the form of short-term government securities. Given their existing holdings, foreign governments already have all the power in the world to create the kind of havoc Summers and Garten worry about. If they want to use their assets for non-economic ends--to pressure governments, to cause economic harm, to exercise political clout--they can in fact do so much more easily by dumping government securities and playing with currency and bond markets. They do not need to buy up shares in individual companies.
The creation of sovereign wealth funds is an attempt to diversify from these low-return investments, not a strategy to increase ownership of U.S. and other assets further. Summers might as well have welcomed this trend by noting that, by his own logic, the global financial system depends on investors and traders acting so as to maximize their economic return.
These funds are mostly the product of accumulated US dollars by China, with its massive trade surplus, and by oil-exporting countries reaping generous profits from oil at $90 plus per barrel.
How big are they? Estimates vary. The 28 nations with Sovereign Wealth Funds (SWFs) have :
in total, assets of $2.1 trillion.
By 2011 or 2012, SWFs could have piled up $7 trillion to $8 trillion
SWF assets could be $3 trillion now and $10 trillion by 2012
The funds' practices vary widely. Norway's fund, for example, makes detailed disclosures of purchases but Abu Dhabi's publishes none. According to reports the Abu Dhabi and Singapore funds are considered significant, given their size, the difference in their sources of capital - Abu Dhabi's comes from oil, Singapore's from export revenues.
In conclusion with suspicion over government-owned investment funds has been rising in recent years as they grow in number and stature, Singapore welcomes this opportunity to be engaged in such meeting.
