SWF Radar

The IMF has released a press release (no permalink currently available) stating that, “The International Working Group of Sovereign Wealth Funds (IWG) will convene its second working session in Singapore on July 9-10, 2008 to continue deliberations on a set of Generally Accepted Principles and Practices (GAPP) regarding sovereign wealth funds, the group's co-chairs announced today [Friday].”

GAPP would appear to be a new name. I’m not sure it’s a great choice, seeing that it is very similar to GAAP and expands into something that contains nothing intrinsically SWF-related.

I’m also still unsure about how any set of SWF guidelines could deal with state foreign investments routed through, say, a consortium of SOEs rather than through an SWF, or that are made directly by a foreign reserves manager or sovereign pension fund, or that are made by a state-owned bank via a western private equity company, etc. Surely the issue here is that the foreign investment is made by a state, not that it is made by a state via an SWF? The fact that so much press coverage of state foreign investments by vehicles that are not what most people would consider to be SWFs still makes reference to SWFs indicates that this is hardly an irrelevant issue.

What, for example, is the difference between state-owned Baosteel’s looking to acquire a foreign company, the CIC’s linking up with Baosteel and others to do the same thing, and the CIC’s simply acquiring a stake in a foreign company on its own?

Sure, there are other agreements and guidelines that deal with many of these distinct investment routes. Indeed, the Financial Times reported just yesterday that the OECD is to take a look at SOE investment abroad with the aim of creating a new set of guidelines for SOEs. But any state investing abroad for strategic or political reasons is unlikely to differentiate too much between the different routes, so may always push investment through the channel with the weakest guidelines, or indeed may look for a channel that evades all of them.

In short, a set guidelines of for sovereign foreign investment that covers, say, the CIC without covering Baosteel may simply see investment flow through the latter rather than the former, with a plethora of guidelines also increasing the number of gaps through which the investment can flow entirely unhindered.

But maybe the IMF has this covered? Or maybe it is content merely to cover SWFs, regardless of how many questions this limited exercise raises?

And still there is the question of whether there is even a need for a set of SWF foreign investment guidelines.