SINGAPORE: A set of guidelines for sovereign wealth funds (SWFs) is expected to be published on Monday after being reviewed by the International Monetary Fund (IMF) this Saturday.

Analysts expect these guidelines to encourage transparency among funds, but they also said it would be a challenge to create a common set of rules for a wide variety of funds.

Earlier this month, representatives of 26 sovereign wealth funds reached a preliminary agreement on a draft set of guidelines.

The International Working Group of Sovereign Wealth Funds will present the guidelines to the IMF's key policy-guiding body – International Monetary and Financial Committee – when it convenes in Washington.

At 45 years old, the Kuwait Investment Authority is the world's oldest sovereign wealth fund. Since its inception, more than two dozen state funds have sprung up and they are expected to manage some US$12 trillion by 2010.

Concerns have been raised that countries could use funds to pursue non-commercial interests. IMF's framework is thus needed to guide the conduct of appropriate investment practices, as well as governance and accountability arrangements.

Kai-Alexander Schlevogt, associate professor, Management Practice, NUS Business School, said: "The guidelines will help – to some extent – set up best practices and there are commitments by the funds, so recipient countries can hold them responsible.

"Once you don't sign up to the rules, you set yourself up, then of course the recipient countries will scrutinise you more intensely. In this respect, at least formally, they have to sign on to these guidelines."

Observers said the challenge will be to ensure the guidelines are relevant to all types of funds.

"We have to develop a set of uniform guidelines for a very diverse set of SWFs. They range from funds from Singapore, like Temasek Holdings and GIC, which are very benign – they follow mainly economic objectives... (to) funds from other countries like Russia and China that, frankly, strive for national greatness," said Prof Schlevogt.

State funds have been lauded for their shock-absorbing role during the current financial turmoil.

This reflects the typically long-term investment horizons, limited liquidity needs, and mainly unleveraged positions of such funds. Following this, analysts said hedge funds are likely to be the next group up for scrutiny.

Prof Schlevogt said: "Once the SWFs have subscribed to these guidelines, it will be more difficult for hedge funds to operate in complete secrecy. So those in charge of these funds will have to adopt measures to increase their transparency and accountability."

A hearing on hedge fund regulation will take place in the United States next week.


- CNA/so