Treasury Bond Don’t fear them

Attempts are being made to make SWFs more transparent and open up the markets in the countries they represent. With the support of IMF, a group of governments could reach a consensus to establish common ground rules and internationally agreed code of ‘best practices’ for host countries that experiences the inflows of SWF investments. Also, a transparent procedure should be devised to know if the SWF investments are contrary to the global community, i.e., public or private interests. This would be provide a great opportunity to the western countries to work with emerging economies. The US has passed the Foreign Investment and National Security Act in the recent  past to avoid  a repeat of the political embarrassment of the Dubai Ports World affair. Similars legislations in Germany and elsewhere in Europe indicate that the western countries are worried about the increasing role of SWFs.

The fact that a foreign investor is an agency  of a  foreign state  matters only if the SWF obtains a controlling (equity) stake in an enterprise that has strategic significance. Large funds like Kuwaiti fund often take controlling shares. Norwegian fund and Singapore’s Temasek holding often purchasenon-controlling shares. Since difficulties  always  arise when the fund enjoys a large influence in target companies, the potential host countries, the domestic  regulator and the competition commission should be  prepared enough to handle any problem that may spring up. Funds should publish internationally audited accounts of their investment portfolios and corporate governance.