WASHINGTON, US - THE United States Treasury said it had reached a series of agreements with two powerful sovereign wealth funds based in Abu Dhabi and Singapore covering investments in US markets.

The agreements were hammered out in a meeting at the US Treasury hosted by Treasury Secretary Henry Paulson on Thursday and come amid mounting congressional scrutiny of foreign government funds, some of which are buying up large stakes in corporate America.

'The US welcomes sovereign wealth fund investment and looks forward to continuing to work with these two countries and others to support the initiatives underway at the IMF and OECD to develop best practices for sovereign wealth funds and recipient countries,' the US Treasury chief said.

Mr Paulson announced the agreements after meeting Singapore's finance minister, Mr Tharman Shanmugaratnam, and the deputy chairman of the Government of Singapore Investment Corporation (GIC), Dr Tony Tan. The GIC controls investment funds of more than US$100 billion (S$139 billion).

Government of Abu Dhabi executive council member Hamad Al Hurr Al Suwaidi and officials representing the Abu Dhabi Investment Authority (Adia) from the oil-rich United Arab Emirates also participated in the talks.

Analysts estimate that Adia has around US$300 billion in assets.

The three governments agreed that sovereign wealth funds' investment decisions should be based on commercial grounds, rather than the geopolitical strategies of a controlling government, Mr Paulson said.

Some countries have run sovereign wealth funds for decades, but other states - such as Russia and China - have set up funds in recent years as their economies have grown.

Such funds typically seek to earn returns on foreign investments to support domestic programmes.

Mr Paulson said it was also agreed that funds should be more open about their finances and investment aims, that they should run strong risk management programmes and respect other governments' laws.

The principles also state that countries receiving investment flows should not erect protectionist barriers against foreign investment and should not discriminate between rival funds.

Treasury officials said they had been analysing sovereign wealth funds more closely of late due to their mounting investment clout, especially as Wall Street endures one of its worst financial crunches in decades.

US officials stressed that they welcome foreign investment and are working to make sure congressional lawmakers are kept informed about market developments.

The GIC and Adia have both invested billions of dollars in troubled US banking giant Citigroup in recent months.

The Abu Dhabi fund invested US$7.5 billion in Citigroup in late November and the GIC invested US$6.8 billion in the US financial group in January.

Citigroup has been in need of large cash infusions as its finances have been ravaged by the US housing downturn and a related credit crunch which is also sweeping US and global markets.

The banking titan posted a huge quarterly loss of US$9.8 billion in January which it primarily blamed on the housing slump. -- AFP

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