Growing calls to regulate sovereign wealth fund (SWF) investments in Europe and the US have raised fears of protectionist sentiment impeding global capital flows.
Warnings that SWF investments in nationally strategic assets could be leveraged for political means have prompted public statements of concern from business leaders and heads of state, including Germany’s chancellor Angela Merkel and France’s president Nicolas Sarkozy.
The European Commission responded in February by proposing a SWF voluntary code of conduct to encourage greater transparency and common governance standards, without ruling out regulation.
On an international level, the International Monetary Fund and Organisation for Economic Co-operation and Development are also working on a set of voluntary SWF codes of conduct.
Addressing the first Luxembourg conference on SWFs, Kuwait Investment Authority chief Bader M Al Sa’ad said regulation of SWFs would adversely affect global capital flows, working against the common global interest.
He referred to the establishment of codes of conduct as regulation under another name. “Regulating SWFs will not stimulate the global economy. Let us address the issue at hand by regulating those entities that are responsible for the current (financial markets) crisis.” There was no evidence over past decades of any wrongdoing by SWFs, he added.
European trade commissioner Peter Mandelson said the debate about SWFs “taps into a deep vein of anxiety about economic openness in Europe and the US” and said he supported the establishment of an SWF code of conduct.
But Mr Mandelson echoed Mr Al Sa’ad’s concerns about an adverse effect on global capital flows and warned against encouraging negative public sentiment towards foreign investment because it could adversely affect Europe’s own investments abroad. “FDI capitalises huge chunks of our stock markets and underwrites literally tens of million of European jobs. We need to encourage it, not counter it,” he said.