Leading sovereign wealth managers shattered hopes that they would use their trillions of dollars of reserves to shore up Western assets as they unveiled a new voluntary code of conduct yesterday.
Hamad al Suwaidi, a director of the Abu Dhabi Investment Authority, the world’s largest SWF with an estimated $875 billion, said that his fund would not change its investment benchmarks following the events of recent weeks.
“Recent events may create opportunities but recent events should not change our [investment] benchmarks,” he told Emerging Markets. “We are evaluating our options along with other institutions.”
ADIA was one of several funds to invest in US and European banks in the early stages of the crisis. It bought a 4.9% stake for $7.5 billion in Citigroup at $31.83 a share in November 2007. Citi shares closed at $14.11 on Friday.
Asked whether the fund would buy troubled US banking assets, he said: “ADIA has invested in Citibank so they have already invested and they are reviewing their proposals daily.”
Surprisingly, al Suwaidi said that he had not yet had time to read either the G7’s five-point plan or the communiqué from the IMF’s key international monetary and financial committee (IMFC).
He was speaking after a committee of 26 SWFs, known as the International Working Group, published a set of voluntary principles aimed at reassuring recipient countries concerned by the government-owned funds taking large stakes in strategically important countries.
The principles cover legal, institutional, and macroeconomic framework of each SWF, its governance and accountability arrangements, and investment policies and risk management.
Politicians in the US, Germany and France have accused governments of using SWFs as instruments of state policy rather than maximizing shareholder value.
Al Suwaidi said: “That hostility was greatly reduced when we started our process, and the more information we offered the less hostility there was.”
Asked whether banks’ urgent need to find new capital had been a more powerful factor in reducing hostility, he said: “We are in the middle of uncertain times and we have just come out with the principles. We should wait and see.”
He reiterated ADIA’s mandate which required it solely to invest overseas, in response to growing calls among Gulf market participants for government-backed cash to shore up liquidity in domestic markets.
David Murray, chairman of the Australian Future Fund, said it was important that companies in countries that were going through the crisis were able to get access to SWF capital.
“If people are confident that they are acting on a normal economic imperative they should be confident they will take [investment] decisions as normal investors”, he said.
Murray rejected suggestions that these funds should seek to recapitalize western financial institutions simply to try to restore to restore financial stability. “As patient long term investors SWFs already play a role in unstable global markets,” he said.
“We are following a normal economic imperative. To do otherwise would suggest that the exercise we embarked on.”
John Taylor, a former US Treasury undersecretary for international affairs, told Emerging Markets that SWFs could be beneficial in the current market turmoil.
“I would hope that with the right transparency measures we can have more involvement of the sovereign wealth funds and other governments as well as the private sector.”