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Critical Role of Sovereign Wealth Fund Investment

On the heels of a landmark agreement by leading sovereign wealth funds (SWFs) to increase their transparency, representatives of major governments and SWFs gathered yesterday in Washington, D.C. to discuss ways to keep major markets open for investment from these increasingly important sources of capital.

At a forum organized by the United States Council for International Business (USCIB), senior officials from the U.S. Treasury and the 30-nation Organization for Economic Cooperation and Development (OECD) were joined by representatives of China’s leading SWF, Goldman Sachs and other leading experts.  Speakers emphasized the critical importance of maintaining market openness to all forms of investment, including from SWFs, as the world contends with the ongoing financial crisis.

Deputy Treasury Secretary Robert Kimmitt: Without access to capital, growth will seize up.

“In these times of heightened uncertainty, it is imperative that we don’t turn inward, but rather embrace free investment and trade,” stated U.S. Deputy Treasury Secretary Robert Kimmitt.  “Allowing capital to flow freely is vital for economic growth and will enable healthy institutions to emerge from the current turmoil.  Without access to capital, the engines of economic growth seize up and risk the health of the broader economy.”

Amid a severe credit crunch, more and more companies and governments are turning to SWFs for much-needed capital.  SWFs have been in existence for decades, but their role and the number of funds has grown significantly in recent years, along with concerns about the management and intention of some funds.

The forum examined the International Working Group on Sovereign Wealth Funds’ recently released Generally Accepted Principles and Practices for sovereign wealth funds, as well as implementation of the OECD’s recommendations for keeping markets open to SWF investment.

Reflecting on efforts to address the financial crisis at the IMF/World Bank meetings over the weekend, OECD Secretary General Angel Gurría commented that IMF members were now “less of a cacophony, more of a choir.”  He said it was essential for countries seeking to benefit from investment by sovereign wealth funds to abide by fundamental OECD principles of openness and non-discrimination.

“We want to avoid the illegitimate use of national security to stop bona fide investments,” he said.  Mr. Gurría told the audience efforts by the IMF and OECD to develop rules and standards for SWFs and host governments had fostered confidence and removed suspicion about sovereign investment.

Other speakers at the USCIB forum included Daniel Sullivan, assistant secretary of state for economic and business affairs, Jesse Wang, executive vice president of the China Investment Corp., John Waldron, managing director at Goldman Sachs, and Edwin Truman of the Peterson Institute for International Economics.  Jerry Leamon, global managing partner with Deloitte, and Scott Miller, director of national government relations with Procter & Gamble and chair of USCIB’s Trade and Investment Committee, also participated.

The forum was co-sponsored by the Business and Industry Advisory Committee to the OECD, TransAtlantic Business Dialogue, National Foreign Trade Council, Emergency Committee for American Trade, National Association of Manufacturers, Financial Services Forum and Financial Services Roundtable.

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