Don’t discriminate against wealth funds, OECD says

These wealth funds, with assets above $2 trillion and growing fast, have been a source of angst in many Western countries, who worry that they will base investment decisions on political rather than financial goals. In a report on sovereign wealth funds and recipient country policies, the Paris-based Organization for Economic Cooperation and Development said its members had agreed to be guided by principles of nondiscrimination and to ensure that their rules governing foreign investors were clear and predictable. “As is often the case, when new actors emerge on the international financial scene, the players need to become better acquainted,” the OECD said in a report to the IMF’s policy-setting International Monetary and Financial Committee. “The growing role of SWFs raises issues regarding the smooth functioning of financial markets and they raise investment policy questions, including legitimate concerns in recipient (countries),” the report said.

The Group of Seven (G7) rich nations had asked the OECD and the IMF to study wealth funds and come up with a list of best practices to guide their investments. The OECD said it would release its final report next spring. “The resulting framework will foster mutually-beneficial situations where SWFs enjoy fair treatment in the markets of recipient countries and these countries can confidently resist protectionism pressures,” the OECD said. These wealth funds, concentrated in the major oil producing countries as well as key Asian exporters such as China, have drawn closer scrutiny as they step up investment in Western countries. In recent months, they have invested billions of dollars in banks whose balance sheets were battered by the financial market turmoil. Some of the funds have complained that countries were discriminating against them, and that restrictions placed upon them amounted to protectionist walls.

The US Treasury recently signed an agreement with wealth funds from Singapore and Abu Dhabi that it hopes will become a model for the IMF to follow in its guidelines for wealth fund operations. The department is also expected to release tighter rules later this month detailing how they will vet transactions involving foreign buyers for national security risks. (Reuters)