SWF Radar NonFinancialInvestmentCriteria

Thomson Reuters reports that, “Norway’s $400 billion sovereign wealth fund is unlikely to rule out investing in countries that abuse human rights unless such sanctions are adopted as foreign policy, the Norwegian finance minister said on Wednesday.”

The article adds that so far the Norwegian government and therefore the Government Pension Fund – Global have banned investments only in Myanmar.

The Financial Post asks which is a greater threat to global capitalism: The Abu Dhabi Investment Authority or the Montana Board of Investments (MBI)?

It adds that, “As for worrying that SWFs will carry out economic misdeeds on behalf of their sponsor states, those fears would be better directed at energy companies in China and Russia.”

Brad Setser, at his blog, writes on the CIC’s mandate to support the expansion of Chinese enterprises abroad that, “Supporting national champions is a separate mission from managing an external portfolio that maximizes risk-adjusted return. For that matter, I suspect it will be hard for the CIC to argue that it is a purely commercial investor if the state banks that it owns aggressively support Chinese state enterprises as they expand abroad.” (FT Alphaville also picked up on Setser’s post.)

The post also contains a link to an article by Setser, published by Emerging Markets in May, in which he writes that, “Right now the CIC looks more like the state agency for managing China's investment in the financial sector - whether in China or abroad - than a diversified global fund manager. The CIC's reasons for putting most of its eggs in the same financial sector basket have not been clearly explained.”

The article adds that, “[T]he creation of the CIC has led to a net loss of transparency in the global financial system.”

Thomson Reuters reports that, “China Investment Corp is turning its back on countries that are suspicious of sovereign wealth funds, Gao Xiqing, CIC’s president and chief investment officer, said on Friday. Gao told a mergers and acquisitions conference that CIC ‘has a problem’ that countries are defining more industries as strategically important.”

The article also quotes Gao as saying that, “We are looking at clean energy and environmentally friendly investment. (We are) looking at everything cross-border except for casinos, tobacco companies or machine gun companies.” This interest in socially responsible investing (SRI) suggests that CIC is indeed following the Norwegian SWF model, as Gao said it would during his 60 Minutes interview.

It should be noted, though, that the use of investment screens based on non-financial criteria and the targeting of areas favored for non-financial reasons are likely to open up CIC to further charges of political influence (as, for example, with the political battles in the US in the 1990s over economically targeted investments by pension funds).

Its adopting SRI could see CIC coming under pressure from Western activists as a possible ally in various social and environmental causes.

And it could also see CIC’s returns weighed down by various opportunity costs or even losses from socially and/or environmentally responsible but ultimately bad investments (note, for example, CalSTRS recent reconsideration of its expensive decision in 2000 to divest in the tobacco industry and recent warnings that clean-energy investing may be showing signs of bubbling over).

Thomson Reuters reports that, “Heightened national security concerns over strategic investing by sovereign wealth funds (SWFs) appear to be overblown, a new study released on Friday found. The study, conducted by consulting firm Monitor Group, found that the bulk of SWF investing appears to be aimed at furthering the economic development at a host or allied country, not to acquire sensitive strategic or economic assets to advance political aims of a state.”

BBC News writes that, “Amid the hustle and bustle of the OECD annual meeting, something extraordinary seemed to be tacking place - rich countries and poor countries agreeing about economic policy. The policy in question was what to do about sovereign wealth funds (SWFs), a topic of great concern to many Western politicians and members of the public.”

The article also mentions that the one SWF with a clear track record of using non-financial investment criteria is Norway’s.

Thomson Financial reports that, “US Treasury Secretary Henry Paulson, on a tour of Persian Gulf countries, again endorsed investments by their government-owned sovereign wealth funds (SWFs) into the US, saying they are motivated by profit and not by politics.”

Thomson Reuters reports that, “Sovereign wealth funds need to make clear their objectives to ensure that they are not using investments in the United States to advance a political agenda, experts told the U.S. Congress on Wednesday.”

The US House of Representatives’ Committee on Foreign Affairs has published the transcript of Edwin M. Truman’s oral testimony given today before it on the rise of sovereign wealth funds and the impact on US foreign policy and economic interests.

The US House of Representatives’ Committee on Foreign Affairs has put online the transcript of the oral testimony of Gerard Lyons, chief economist and group head of global research at Standard Chartered Bank, given before it today on the rise of sovereign wealth funds and the impact on US foreign policy and economic interests.

One passage that caught our eye states that, “[I]t is important to stress that there are some generic issues. Many of the concerns are not, strictly speaking, just about SWFs but are often more about government controlled companies. For instance, Russia's SWF [its National Wealth Fund] is relatively transparent, yet worries are very much focussed on Russian government influenced companies, such as Gazprom.”