Calls for a less antagonistic approach to sovereign wealth funds were made yesterday after G7 finance ministers hosted an “outreach dinner” Friday for the heads of eight of the funds.
Bob Diamond, president of Barclays Plc, told Emerging Markets that the public debate was healthy, but there was a need to “separate a lot of emotion from the reality. What does transparency really mean?”
Both state-owned China Development Bank (CDB) and Singapore’s sovereign wealth fund Temasek took equity stakes in Barclays earlier this year. Diamond emphasized that the relationship with CDB was a purely “commercial” one, which is “good for China and good for Barclays”.
Diamond said: “Do we feel we have gotten great transparency? Absolutely, the discussions have been very open.
“This has been more constructive and an easier dialogue than I would have expected. Governor Chen [Yuan of CDB] has said they are very willing to do this. There is no hesitancy, there is no resistance.”
Diamond noted that many sovereign wealth funds, including Temasek, were long-established – the rapid growth of such funds was the “single biggest change” that had triggered the policy debate.
“Our relationship with Temasek since they invested this summer has been excellent. They are focused experts in the financial services industry, and we see them as a terrific shareholder,” said Diamond. “They have been open and transparent, there are no issues,” he added.
The IMF forecasts that sovereign wealth funds could grow as much as six times in size within five years, from around $2.9 trillion today.
Fund managing director Rodrigo de Rato told a press conference this weekend that “we see the sovereign wealth funds playing an important role in distributing wealth across generations and smoothing fiscal revenues across years.”
He added: “They are often real money investors with long-term horizons, and many play a stabilizing role in markets endorsing these calls for increased transparency.”
De Rato is encouraging Asian and Middle Eastern funds, gushing with petrodollars and current account surpluses, to ensure transparency and industry best practice, as set by Norway’s Government Pension Fund.
Espen Klitzing, chief financial officer for the Norwegian Fund, said recently that the authorities in many emerging markets, including China, had already consulted his organization about management techniques.
Brazilian finance minister Guido Mantega indicated earlier this week that his country might join the growing band, with a fund of at least $10 billion to invest in overseas securities.
Fears about the funds by some in OECD countries were voiced in Washington this week by Goldman Sachs International vice chairman Robert Hormats. “The number of funds has increased so quickly and the numbers are so enormous”, he told Emerging Markets. “ The money that comes is for economic purposes and is not seen to be coming with a politically related focus.
“I fear that unless there’s more transparency and clarity on this then this sort of investment protectionism that’s beginning to emerge here could become more troublesome.”