The IMF hopes to broker an agreement in principle on voluntary guidelines by sovereign wealth funds, effectively pension funds which control assets worth a combined $2 trillion to $3 trillion, at the two-day closed-door meeting in Santiago.

Some countries where the funds invest, like the United States, are worried that funds seen controlling $10 trillion in assets between them by 2012 could be a destabilizing factor in international markets with their large-scale investments.

However, some sovereign wealth funds, who keep their investments and strategies a closely guarded secret, are worried they could lose their competitive edge if they disclose too much.

They are also worried they could face closer scrutiny, possibly by the IMF, and any restrictions could then dent international capital flows.

“Officials are optimistic significant progress is being made towards a code of investment practices for sovereign wealth funds,” an IMF official told Reuters as the meeting attended by around two dozen sovereign wealth funds and 11 nations where they invest got under way.

The meeting aims to reach an understanding on the Generally Accepted Principles and Practices on sovereign wealth funds in advance of the IMF-World Bank Annual Meetings on October 10-13. However, it is possible another meeting could be held before then.

Sovereign funds have existed since the 1950s, but as large Asian exporting countries and oil-producing nations have seen their currency reserves balloon, they have mushroomed in size and number.

Any guidelines agreed upon are expected to be a compendium of current wealth fund practices, including fiscal and data practices, but would be voluntary.

“We have to see how some sticking points are addressed. One issue is how voluntary these guidelines will be,” said one sovereign wealth fund official, asking not to be named.

The working group is co-chaired by Hamad al Suwaidi, undersecretary of the Abu Dhabi finance department and a director of the Abu Dhabi Investment Authority, and Jaime Caruana, director of the IMF’s monetary and capital markets department.

Of the sovereign wealth funds, China, Kuwait, Norway, Russia, Singapore, and the United Arab Emirates are among the largest. Other countries that are members of the working group include Libya, South Korea, Chile, Botswana, Canada, Norway, Australia, Ireland and the United States.

Saudi Arabia, Oman and Vietnam are observers.

Some countries where the wealth funds invest have also cited national security concerns should the funds seek to obtain sensitive information through their investments.

The IMF has said there is no clear evidence to support such concerns.

During the current financial turmoil, which began in the US housing market, wealth funds have proven to be market stabilizers, investing billions of dollars in major Western banks whose balance sheets were hit by the market crisis. (Reuters)