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SINGAPORE: State investment funds like the Government of Singapore Investment Corporation (GIC) and the Abu Dhabi Investment Authority have expressed support for a new set of guidelines for sovereign wealth funds (SWFs).
The guidelines are drafted by some 26 SWFs, and aim to make the activities of such funds more transparent and easier to understand.
Sovereign wealth funds (SWFs) like Singapore's GIC are expected to conform to 24 principles that aim to enhance transparency, and steer them away from non-commercial goals.
However, observers say the vagueness of the guidelines leave many gaps.
One example is a rule that states a regular review of how the guidelines are being implemented must be done.
Associate professor of Management Practice at NUS Business School, Kai-Alexander Schlevogt, said: "The funds... they’re actually responsible themselves for reviewing whether they have implemented the guidelines.
"This is not really in the spirit of good governance and checks and balances. I'm not a fan of self-policing, especially if you can decide to disclose if things... go bad. So it's better to have an impartial body who actually reviews implementation."
Dr Schlevogt added that while guidelines may require a disclosure of non-commercial activities, they do not explicitly ban them.
He said: "The proposed guidelines do not proclude SWF from pursuing non-commercial activities. They just have to declare their objectives there.
"Secondly, it's very difficult to hold accountable a nation to these kind of objectives. A country can still act as a wolf in sheep's clothing and pursue non-commercial objectives while posturing as a benign fund. So this remains a problem."
As part of the guidelines, funds need to be audited independently and publish annual reports as well as financial statements.
"It's a good first step. We should not succumb to the perfect solution fallacy, so even a partial solution might improve things... So I think this is very positive," said Dr Schlevogt.
State funds have been lauded for their shock-absorbing role during the current financial turmoil. This is a function of the typically long-term investment horizons, limited liquidity needs, and mainly unleveraged positions of such funds.
Since the first sovereign fund was set up in 1953, more than two dozen state funds have been created. The funds are expected to manage some US$12 trillion by 2010.
- CNA/yt
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