Code of conduct can build trust for sovereign wealth funds

04 April 2008
When asked to name a deal by a sovereign wealth fund that has endangered their national security, government officials in the US and Europe talk vaguely about strategic assets and point to their airports, telecoms networks and defence companies.

But despite all the bluster, it is difficult to think of a single instance where national security has genuinely been at risk.

Most countries already have rules to prevent their most important assets falling into the hands of people they do not trust. Where they have not, they can rapidly apply pressure to ensure unwanted deals fail.

While everyone can muddle through, it is a situation that is unhelpful to both the funds and the countries receiving their investments. The investors cannot be sure if their deal will become entangled in a protectionist debate, while recipient countries are left with a sense of disquiet when assets are sold to funds with opaque motives.

The most controversial overseas acquisition by a Gulf company in recent times was DP World’s aborted takeover of US ports in 2006. Many in the US now acknowledge that their concerns were overblown, but recipient countries continue to worry that their national security really will be placed at risk in the future. As funds grow larger and more ambitious, they are likely to come up against more entrenched national interests.

Ultimately, it is a question of trust. The greatest concern in the West is not over the Middle East funds, which probably control close to $2 trillion in assets, it is over Chinese and Russian government funds.

Abu Dhabi has already agreed to a set of principles with the US and all the Gulf’s funds would be well advised to sign the code of conduct being developed by the International Monetary Fund (IMF). It will demand a level of open-ness many are unused to, but while this will cause them some short-term discomfort, it is a small price to pay for continued access to deals.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.