The New York Times-20080125-At Davos- Foreign Funds Add Tension To the Talks
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At Davos, Foreign Funds Add Tension To the Talks
Huge pools of state-controlled cash have rescued American and European banks from their own mistakes in recent months. And the people who run those funds want some respect.
The behavior of such sovereign wealth funds, a fringe issue last year at the World Economic Forum, has become a prime topic. Many participants are speculating on the extent to which the funds are seizing control of strategic assets or using investments to cloak a political agenda.
Bader Al-Saad, managing director of the Kuwait Investment Authority, grew increasingly testy during a panel discussion at suggestions that his nation's fund wanted to do anything other than earn a good return.
It's all about 'if' and 'suppose,' Mr. Saad said. His fund helped recapitalize the banking giants Citigroup and Merrill Lynch this month after heavy losses linked to financial market turbulence. It's as though sovereign wealth funds are guilty before proven innocent.
Western officials, thankful for the cash in times of crisis, say they want to encourage the free flow of investment. But they are worried that, as skepticism about the benefits of globalization rises in Europe and the United States, investments from funds controlled by Russia, China and Middle East nations will ignite irresistible political demands for restrictions on investment.
That has created a palpable tension, as Western leaders try to pre-empt a crisis that has not yet come -- and may never arrive -- by demanding that the funds be more open about their investments.
Western officials have cited Norway's $380 billion fund, called the Government Pension Fund-Global, as a model for the rest of the world. The fund publishes detailed statistics on its holdings and insulates itself from politics by using asset management firms to make investments. It cannot own more than a 5 percent stake in a company, and the average stake is 0.5 percent.
But Kristin Halvorsen, Norway's finance minister, questioned whether China, Russia or even Kuwait could suddenly adopt Norwegian openness.
Our transparency is very connected to the transparency of Norwegian society, Ms. Halvorsen said. It is a part of our tradition that other countries do not have.
Mere talk of new rules clearly grates on Russian officials.
Alexei L. Kudrin, Russia's deputy prime minister and finance minister, who was also in Davos, pointedly reminded the audience that his country, during an extended bout of weakness in the 1990s, had no choice but to welcome Western investment.
When there was a period when traditional economies had strong funds, and though several funds moved into markets and bought industries, we did not speak of restricting capital, Mr. Kudrin said.
The investor George Soros pointed out that the funds, which now have $2.5 trillion to $3 trillion in assets, were diverse, and that generalized sets of rules would be hard to formulate and apply.
I think we have to distinguish between different kinds of wealth funds, Mr. Soros said. Gulf states are one kind. China is another. Singapore is yet another. Russia is also different. So I don't think you can make any general rules.
Indeed, the funds operate in very different contexts.
Singapore's funds, the Government Investment Corporation and Temasek Holdings, plow government savings into investments with a long track record, since the 1970s, of serving the twin goals of diversification and return maximization.
Funds based in the Persian Gulf operate in a volatile region where the United States is a strategic power.
China's new China Investment Corporation has raised concerns in part because Chinese companies are believed to be eager for access to Western technology. And Gazprom, the Russian state-owned natural gas giant, has flexed its muscle to such a degree -- notably in a dispute over supplies to Ukraine -- that Europeans are worried that the Russian sovereign fund, not yet operational, will operate in the same way.
The example of DP World in Dubai, which is not a sovereign fund but a state-owned company, has lingered in the minds of people like Mr. Saad, the Kuwaiti fund manager.
After DP World was blocked from taking over management of American ports in 2006, much of the world asked whether there was a new litmus test for investment in the United States.
Mr. Saad insisted that any new rules should also apply to large private investors, like hedge funds. Western nations in general, he said, should become more transparent about what they define as strategic or critical sectors, areas where American and European officials say they need to preserve the right to block capital flows.
