Sovereign wealth funds in 'non-interference' pledge

Singapore and Abu Dhabi have moved to reassure the world that they will not use the massive financial clout of their state-owned investment vehicles to political advantage. The governments of Singapore and Abu Dhabi agreed several policy principles on sovereign wealth funds (SWFs) during a special meeting with the US Treasury on last week. The main principle agreed was that investment decisions would be based purely on commercial grounds.

The meeting was arranged in response to mounting concern about the potential geopolitical influence cash-rich SWFs can potentially exert, particularly at a time when many financial institutions are being starved of funds by the turmoil in the financial markets. The issue came to the fore in recent weeks as SWFs invested millions to support leading US banks, Citigroup and Merrill Lynch, which have been hit by the sub-prime mortgage crisis.

Abu Dhabi Investment Authority (ADIA) and Singapore's Government Investment Corporation (GIC) - the two largest SWFs in the world - were represented at the meeting. Apart from making the non-political interference clause part of their investment management policies, GIC and ADIA also pledged greater openness on the objectives, institutional arrangements and financial details surrounding deals, and to have strong governance structures and internal controls.

In return, the policy principles state that countries should not hinder SWFs with protectionist barriers. '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,' Treasury Secretary Henry Paulson said.

The IMF announced on Friday that its executive board endorsed a proposal for the IMF to work with SWFs and other interested parties to prepare a set of best practices for the state investment institutions.

GIC is a significant investor in the European real estate market. In March, GIC teamed up with UK commercial property investment manager Orchard Street to launch a £300mln 'Special Situations' fund to invest in commercial property in the UK. A month earlier, the SWF purchased a major stake in Iso Omena shopping centre in Helsinki from Citycon for just under EUR 132mln, and partnered with ING Real Estate to acquire the Roma Est shopping centre near Rome for EUR 400mln.

The Investment Corporation of Dubai, another major SWF, last week abandoned attempts to take a controlling interest in troubled Spanish real estate giant Colonial, but only because agreement could not be reached with Colonial's creditors.