State-owned funds can do good for financial markets
Lee Su Shyan
Tue, Dec 11, 2007
The Straits Times
ALL players in the global financial markets should be treated equally, and state-run investment funds should be no exception.

That view was put forward by Government of Singapore Investment Corp (GIC) deputy chairman and executive director Tony Tan yesterday.

Chairing a press conference announcing GIC's investment of 11 billion Swiss francs (S$14 billion) in global financial giant UBS, Dr Tan was asked for his take on the role of sovereign wealth funds.

He said such funds 'should not be discriminated against'. Supporting a level playing field for all, he said that 'recipient countries should not adopt policies that inhibit cross-border investments. Reciprocity in keeping markets open for foreign investments would be desirable'.

He added: 'Financial protectionism should be avoided.'

Making a case for these funds, Dr Tan said they 'could be seen as contributing to financial stability because of their focus on well-diversified portfolios, long-term returns and virtually no leverage'.

He contrasted these funds with global hedge funds which borrow, control more assets than sovereign wealth funds and tend to trade actively.

When asked if investors would react negatively to a sovereign wealth fund taking a large stake in UBS, chairman Marcel Ospel said: 'If anything, we would expect only positive reaction that such a prominent, professional and high-quality institution comes in and invests a significant stake in UBS - that is a sign of confidence made by very professional leaders of GIC... It is obviously very positive not only for our shareholders but also for our wealth management clients.'

A survey by Standard Chartered Bank (Stanchart) has ranked GIC as the third-largest sovereign wealth fund worldwide, with funds of more than US$215 billion (S$310.5 billion).

Many of these funds have been started by countries benefiting from rapid economic growth and the oil and commodities boom. China has its Chinese Investment Corp while the Abu Dhabi Investment Authority recently took a 4.9 per cent stake in Citigroup.

Critics are questioning if these funds are being used to promote government policy and worry if these funds are investing in sensitive industries such as airline, oil or telephone companies for example.

The British government said in October that it would look at protecting strategic industries from takeovers by foreign state-controlled investment funds, such as those run by Kuwait, Saudi Arabia and China.

There are also moves by the European Union to implement a code of best practices in areas such as transparency, accountability and risk management.

On GIC's part, it is in favour of more disclosure. Dr Tan said: 'There is a case for further disclosure on the part of sovereign wealth funds, in the interest of transparency.'

Such disclosure could include clarity 'on the relationship between the funds and their respective governments, their investment objectives and general strategies, and their internal governance and risk management practices'.

GIC managing director Ng Kok Song quipped that the company was holding a press conference - that is, in itself, a move towards more transparency.

Separately, Dr Tan said that if any guidelines are set on how such sovereign wealth funds operate, they should 'encourage these funds to operate according to commercial principles, with a long-term orientation, free from political motivations'.

He said that Singapore - and GIC too - will play its part in setting out a set of principles that these sovereign wealth funds can use. 'Singapore will participate actively in efforts to formulate a set of principles and best practices for sovereign wealth funds.'

He added that 'GIC believes it can contribute in a positive way to the framework for greater disclosure'.

Responding to a question about the risk of regulatory hurdles if GIC invested in other European banks, Dr Tan thought it unlikely.

He said: 'Each case will be treated on its own merits, both from the investment point of view as well as from the bank and country point of view.

As for other regulatory issues because Temasek Holdings already has stakes in Stanchart and Barclays, Dr Tan said: 'Let me say categorically, GIC and Temasek operate entirely separately. We have no common members on the board of directors, no common management members.

'We are independent companies, we make our decisions separately, we don't consult each other...and we scrupulously endeavour to make sure that the separateness of GIC and Temasek is maintained.'


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