SWF Radar LegislationAndRegulation

The New York Times writes in an editorial that, “Unfortunately, Wall Street leaders and their champions in the Bush administration frame the issue as one in which you either embrace sovereign wealth funds unquestioningly or you're protectionist. As they see it, to suggest that rules are in order is to ‘demonize’ the funds.”

It adds that, “Of course, polarizing a debate is a ploy to avoid discussion - and rules.” But it then itself helps polarize the debate by writing that, “Wall Street wants no curbs on its covetousness and, in many cases, is desperate for the cash. The Bush administration, bent on avoiding blame for the financial failures on its watch, is more than happy for a foreign-government bailout, no questions asked.”

It should be noted that the current US administration has indeed been pushing for rules and guidelines, albeit voluntary ones, to be drawn up by the IMF and OECD. And originally, last fall, the Treasury’s Paulson and the SEC’s Cox both expressed protectionist sentiments with regard to SWF investment in the United States.

Global Pensions reports that, “A proposed bill preventing Californian pension funds from investing in private equity firms partly owned by governments with poor human rights records has been withdrawn, following opposition from state governor Arnold Schwarzenegger.”

The Financial Times reports that, “Germany’s ruling coalition has cleared the way for measures to block unwanted investments by foreign sovereign wealth funds after political differences in Berlin on the controversial move were resolved. A spokesman for Chancellor Angela Merkel told the Financial Times that the ‘remaining issues’ holding up the draft law had been dealt with, adding that the cabinet would adopt the legislation ‘probably in the next few weeks’. Berlin plans to create a German equivalent of the Committee on Foreign Investments in the US (Cfius), by establishing an interministerial commission with the right to review, and possibly veto, acquisitions by state-backed investment funds deemed to pose a threat to national security or public order.”

Reuters reports that, “A proposed California law banning pension funds from investing in buyout shops that have sold stakes to sovereign wealth funds could set a precedent that narrows investment options and returns for the funds, the head of Massachusetts’ state pension fund [PRIM] said on Monday.”

Bloomberg reports that, “Bader al-Saad, head of Kuwait’s $250 billion sovereign wealth fund, said plans by policy makers in the European Union and U.S. to impose greater scrutiny on state investments could harm the global economy.”

The article quotes al-Saad as saying that, “The consequences of imposing regulations on sovereign wealth funds will result in an adverse impact on global capital flows.”

Arnold Schwarzenegger, the governor of California, writes in a comment piece in the Los Angeles Times on a Californian bill relating to SWFs that, “International human rights treaties ought to be dealt with by professional diplomats and the United Nations, with guidance from human rights organizations, not by California investment professionals.”

The bill, AB 1967, which is scheduled to be considered in committee today, is designed to prohibit CalPERS and CalSTRS from investing in private equity firms that do business with specific SWFs.

Reuters reports that, “The [US] Treasury Department said on Tuesday it will release rules by the end of this month clarifying how the government will vet acquisitions involving foreign buyers for national security risks.”

60 Minutes broadcast its interview with CIC’s Gao Xiqing this evening. The interview is now available online (and is embedded below).

In the interview Gao expresses irritation about the mistrust of SWFs in the US and some European countries, talks about the CIC’s policy of not taking control of companies, is honest about the CIC’s performance to date (60 Minutes: “The timing couldn’t be worse”; Gao: “You said it”), and denies that he has been under any political pressure “so far” regarding CIC’s investments.

Gao offers up the example of Taiwan as a potential flashpoint between the US and China and says that, were a serious dispute to arise, he “seriously doubt[s]” that he would be asked to pull the fund’s US investments.

Gao dismisses the suggestion that a firm like Blackstone could be ordered or otherwise compelled by CIC to invest in sensitive US companies by counter-suggesting that, “Maybe they love China so much that they just want to steal all your technology for us?”

As previously announced by CBS, Gao makes what the interviewer describes as an “unexpected commitment” during the interview to have the CIC adhere to the Norwegian model of SWF openness. Gao adds the proviso that the openness not stray beyond commercial viability. He also commits the CIC to the publication of an annual report.

Gao describes the attempt to impose rules on SWFs as insensitive, economically nonsensical, politically stupid and–given the opacity of private equity firms and hedge funds–unfair. He says that he doubts that the IMF has the power to enforce a code of conduct.

Peter Navarro is interviewed in the broadcast and presents the mistrustful view that I have elsewhere described as extreme.

Lawrence Summers is also interviewed in the broadcast. He suggests that the CIC still needs to be monitored but that, “[The fund’s] willingness to be interviewed and go on your show is probably not something they would do if they thought of themselves as having some nefarious purpose.”

Summers also spells out the case against US protectionism, as has been spelled out recently also by various current US Treasury officials in the context of SWF investment in the US.

Update (Apr 7): Here is FT Alphaville’s review of the broadcast.

The Sunday Telegraph writes that, “Simon Walker, chief executive of the British Private Equity and Venture Capital Association [BVCA] described the [Californian] bill [designed to distance the state’s public pension funds from private equity firms involved with SWFs] as ‘deplorable’ but said if passed, it would present a great opportunity for Britain to steal the US mantle as the favoured destination for SWF money.”

The article adds that, “The legislation would bar investments in private equity firms with links to countries that have failed to sign up to five of the six UN treaties on human rights. However, noting the ‘shabby and ill thought out’ bill, Mr Walker said that the US itself had signed up to only three of them. Although countries such as the UAE and Singapore did not meet the criteria, countries such as Sudan, Cuba and Zimbabwe - with arguably far worse human rights records - did.”

NIS News reports that, “The [Dutch] cabinet is considering legislation enabling investments by foreign sovereign funds in the Netherlands to be checked for undesirable consequences.”