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OECD to issue SWF governance guidelines

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  • OECD to issue SWF governance guidelines

GLOBAL - The Organisation for Economic Co-operation and Development (OECD) plans to publish a paper in the next few weeks, outlining corporate governance guidelines which can be applied to Sovereign Wealth Funds (SWFs).

Grant Kirkpatrick, senior economist for the corporate affairs division of the OECD, revealed the organisation has been looking at the issue of SWFs in two ways, firstly the impact of economic patriotism and the role of state run enterprises, and the issue of corporate governance.

Speaking at the International Corporate Governance Network (ICGN) mid-year meeting 'Impact of Sovereign Wealth Funds & Nordic Corporate Governance', Kirkpatrick said the OECD had updated its code of liberalisation which allows it to look at the issues relating to economic patriotism, such as restrictions on cross-border investments, and if necessary to "discipline" offenders.

However, Kirkpatrick also pointed out the OECD had been looking at corporate governance guidelines for private equity and hedge funds and, in particular, focusing on what the investor is and what the financial basis for the investment is.

He claimed the OECD regards SWFs as normal investors and, as a result, it intends to publish a paper in a couple of weeks time which outlines corporate governance guidelines which have been agreed by 30 EU member countries and 50 non-EU members. 

"We want to see how useful these are for SWFs. We're not forcing them on anybody, we're producing a paper and then its up to the SWFs to see if they're useful," said Kirkpatrick.

However, he pointed out a major issue surrounding SWF's relates to its objectives and whether it is working with the state and being politically-led, so he said the guidelines have touched on the issue with a recommendation SWFs should "be transparent and costs should be clear".

Meanwhile, it was also revealed at the conference the International Monetary Fund (IMF) will announce its strategy for tackling SWFs after its board meeting on March 21, as it has now received completed questionnaires from all the existing SWFs, which has enable it to get an idea of how things currently stand, although it was suggested any response will be integrated with action form the OECD.

However, Peter Montagnon, chairman of the ICGN, said SWFs have an important role in international financial markets and warned the organisation was opposed to any regulation "that would restrict their access and deny them opportunities to invest".

He claimed this approach would "fuel the dangers of protectionism" and claimed it was unnecessary to single out SWFs when most countries have safeguards in place to protect against potential issues of competition, national security, utility regulation and the rights of minority investors.

Montagnon suggested SWF should work with other long-term investors, such as pension funds, to "secure value through responsible approaches to share ownership" and to begin dialogues with investee companies on strategy and governance.

He said: "We welcome the multi-lateral initiatives to develop best practice governance frameworks. But it is important that this element of multi-lateral guidance is not undermined by national considerations of host countries."

Meanwhile, Bob Monks, chairman of Lens Investment Management and Governance for Owners, suggested the solution to the hostility to SWFs would be for them to ring-fence a certain amount of money associated with certain investment corporate governance principles, such as those issued by the ICGN, with full transparency about the amount of money and what it is invested in.

However, John Holland, managing director of global cash equities at UBS, suggested transparency should only be one goal of many, as "it is not an end in itself" and could become "counter-productive", a suggestion supported by Christopher Ailman, chief investment officer at CalSTRS, who admitted "there is a problem being too public as you can't be as nimble in moving for investment opportunities".

In addition, Kerstin Hessius, chief executive of the Third Swedish National Pension Fund (AP3), suggested SWFs should split the organisation and management of the fund into two, to try and build on the issue of transparency.

She said: "We need to find a level-playing field but we have to protect beneficiaries from stakeholder and political interference. We all have the same objective but we are forced from time to time to make political choices. It is important to separate when a fund does political stuff. It should have two separate bodies, one to focus on wealth creation, and one on political issues."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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