Brussels, 08/10/2007 (Agence Europe) - A study carried out by the Deutsche Bank Group think tank, “DB Research” was published in September. This study analyses sovereign funds and their activities (EUROPE 9477). Calling for an approach based on an opening up of the markets and reciprocity, it envisages limited political intervention from countries receiving these funds as a last resort and only for protecting their national interests. It says that a European approach would be best or indeed an international approach, even if public opinion in the countries concerned sharply differs from the British and US liberal vision and the interventionist vision purported by Germany and France (EUROPE 9498).
According to Germany's largest bank's think tank, the general rule should be “openness of national and regional markets to foreign investments by sovereign wealth funds (SWF)” as well as “reciprocity of open market access”. The study reveals an “asymmetry” between foreign investment policies implemented by the EU and US and those which are “clearly more restrictive” in countries outside the OECD. Russia restricts foreign participation to its energy industry, China protects its telecommunications and financial industries, and Gulf Cooperation Council countries do not allow foreign investment in oil and banking sectors. The study illustrates that “political intervention in SWF transactions, as in any other foreign investment deal, must be a last-resort option, and should only be applied in cases where national security is under threat”. It adds: “Political decisions leading to such interventions should be based on a set of pre-defined principles for protective measures and thorough analyses by the authorities of each individual case”. However, the report is again the system of “golden shares” and “defensive funds” that authorise stakes in companies to protect them against foreign investment.
DB Research calls for a European or international approach to sovereign funds and indicates that “optimally, the design of measures and instruments for last-resort political intervention should be harmonised at the EU level in order to avoid further fragmentation of investment rules and corporate governance provisions across the member states, thus protecting the integrity of the internal market”. At an international level, the study also says that definition of an “international code of conduct” would help transparency in sovereign funds and strengthen financial stability, an initiative that could be launched by the IMF. This code of conduct would include provisions on the publication of information on the scale, strategy and objectives of sovereign funds, as well as clauses encouraging them to make their annual accounts public, accept an independent financial audit, and comply with rules in force on national and international financial markets.
Sovereign funds appeared in the 1950s and constituted vehicles for investment held and managed by public entities. Enjoying a surplus of liquidity from tax revenues or from central bank reserves, they differ from pension funds or speculative funds insofar as their public character posed a number of questions linked to policy governing financial and corporate governance. Assets managed by these funds are worth $3000bn, twice as much as the speculative fund industry, but less than 5% of assets globally owned by banks. Their volume is expected to triple over the next ten years. The biggest sovereign funds are in the United Arab Emirates, Singapore, Norway and Saudi Arabia. (http: //http://www.dbresearch.com/ (mb)