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SINGAPORE : Sovereign wealth funds have made many high profile investments around the world.
But some apparently well-intentioned deals have gone sour; among them - Shin Corp in Thailand and Dubai Ports World in the US.
Not surprisingly, the dimension of political risk and nationalism now ranks high on the checklist of these funds.
But do sovereign wealth funds deserve the suspicion they get? And what can be done to temper this?
Sovereign wealth funds such as the Government of Singapore Investment Corporation (GIC) like to keep their profile low.
"GIC is not in the business of trying to create headlines. My hope for GIC is... the way we operate in the past, we were never on the front page. If we're somewhere in the financial pages, I think that's about right," said Dr Tony Tan, Deputy Chairman & Executive Director of GIC.
But GIC has been grabbing headlines recently for its multi-billion dollar investments in financial giants UBS and Citigroup.
And because sovereign wealth funds have huge financial resources at their disposal, the intent of their investments is sometimes called into question.
Analysts said, on balance, sovereign wealth funds sometimes don't deserve the suspicions they face.
But they do acknowledge that such funds will have to tread a delicate line when making investment decisions.
Said Ho Yew Kee, Vice Dean, Finance & Administration, NUS: "Let's assume a SWF (sovereign wealth fund) invests in a particular banking system in a country, a big bank. When they find that the financial system of the country is not doing well and the fund decides to pull out from the bank, it can cause a collapse in the system. Then it's no longer seen as the fund making a commercial decision. It can be seen as sabotage by a sovereign to create further chaos in a country.
"These are sensitive issues. The sooner the IMF puts in place basic principles or regulations or code of conduct, the better to avoid possible misunderstanding."
Observers said the way forward lies in the efforts of the International Monetary Fund (IMF) in drawing up a code of conduct for sovereign wealth funds.
"The reality is because the funds were set up in different ways across the world and countries have different motives. You have a combination of funds with commercial focus and others with strategic focus. Some funds are very open and transparent, some are far more secretive," said Gerard Lyons, Chief Economist and Global Research Group Head at Standard Chartered Bank.
"The ideal situation is where you have an open, transparent SWF driven solely for commercial reasons. The problem with SWFs is that they are different to private funds and therefore sovereign funds can be driven by different rules. They don't have to abide by the same pressures that private sector funds do. So it's important that SWFs are forced to abide by a code of conduct," he added.
The code has also gained the support of Singapore's two state funds - GIC and Temasek Holdings.
"One shouldn't see that as a cure to current concerns because I'm not sure that SWFs per se collectively will necessarily support that. Over time, they may have to drift in that direction because they may find it expedient for their investment activities," said Simon Israel, Executive Director of Temasek Holdings.
Said Dr Tan: "The SWFs are here to stay and that's why we believe it's good to have some form of better understanding, some form of code of good practices so that the operations of SWFs and the reactions of the recipient countries will not lead to further problems.
"It's a matter of working out the process whereby they can continue the operations that are good for them and good for the companies that they invest in."
The two Singapore funds have said they will participate actively in efforts to formulate a set of best practices for sovereign wealth funds.
Temasek Holdings believes a code of conduct for such funds could be ready in about one to two years. - CNA /ls
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