Archive for November, 2008

Q&A with Eckart Woertz, Program Manager Economics at the Gulf Research Center

By Ashby Monk

The Oxford SWF Project is a source of open discussion and engagement on the topic of sovereign wealth funds. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we offer the fifteenth instalment of our segment: “Q&A with a SWF expert, stakeholder or policymaker”. We are pleased to welcome Eckart Woertz, Program Manager Economics at the Gulf Research Center. While Dr. Woertz’ views are his own, his perspective helps to further debate and facilitate understanding.

Ashby Monk: It is a pleasure to have you with us today, Eckart. As someone who lives and works in Dubai, what’s your impression of how the recent financial turmoil is impacting GCC SWFs?

Eckart Woertz: The Saudi Arabian Monetary Agency (SAMA) did well as they are mainly invested in bonds. Additionally they are mainly in US-dollars, so they profited from this dollar squeeze of recent months, which will be short lived in my opinion. All the others got hurt, sometimes presumably very badly. Abu Dhabi Investment Authority (ADIA) and Kuwait Investment Authority have over 50 percent of their assets in equities and alternatives, they have also been over weighted in Asia and emerging markets – it must have been carnage. The performance of the younger funds like Dubai International Capital and Qatar Investment Authority has probably been even worse as they were leveraging their equity and real estate acquisitions.

Ashby Monk: With oil prices coming down as well, do you see GCC countries drawing down on SWF assets any time soon?

Eckart Woertz: With oil prices at $50 dollars fiscal surpluses of the GCC countries are meagre to non-existent; Citibank has recently argued that in 2009 they will face even deficits at these levels. So they will need to take recourse to savings – not only for bailing out local banks and prop up local stock markets but for their normal ongoing expenditures and operations. KIA apparently has already withdrawn over $3 billion according to a Reuters report. The idea of Gordon Brown that they could spare “hundreds of billions” for the IMF is ludicrous. At least they do not have such sums in liquid form. Even if they were willing, which they are not, does Mr. Brown want them to sell Western bonds and equities into oblivion just to move the gained liquidity to the IMF? However, I believe that oil prices will be back to $100 over the next three years, tight supplies and dollar printing will overwhelm demand worries even in a recessionary environment.

Ashby Monk: Since it looks like some GCC SWFs will be investing more in domestic markets, I’m curious how foreign vs. domestic investment plays to GCC citizens and media?

Eckart Woertz: You do not have the same amount of public scrutiny and transparency in the Gulf as you have in the West, where the state is supported by society via taxes and owes it some sort of accountability in exchange. The rentier states of the Gulf support themselves and the society through the redistribution of oil rents – no taxation and no representation. Oil prices and oil savings are high enough to keep this social contract for the foreseeable future.

Still, the impact of the global financial crisis is now being felt and the various forms of nascent political participation (e.g. majlis ash-shoura) and a more outspoken press will start to ask questions about the performance of public funds and their usage, especially in Kuwait where you have a very vocal parliament. People expect the governments to bail out local banks first, not foreign ones.

Ashby Monk: In a paper with John Sfakianakis of the Saudi British Bank, you noted that the KIA, ADIA, the QIA, and the various Dubai investment companies are all “sophisticated fund management houses, employing in-house experts with rich backgrounds in finance and investment banking.” How have these funds managed to recruit this talent and get beyond the civil service mentality that is evident in some other SWFs?

Eckart Woertz: I am not sure whether some boring civil service mentality can be pretty performance enhancing in these markets, but once you make the decision to go beyond conservative central bank reserve management and invest in other vehicles than government bonds you basically need to offer enough money and a liveable place. Saudi Arabia and Kuwait are more difficult to live for expats but they have outsourced the sophisticated parts of the portfolio to outside money managers anyway. Otherwise the CVs of sacked bankers from New York and London are piling up on their desks these days. They can choose if they wanted to, but overall the financial sector in the GCC is probably not a net-hirer anymore.

The reason why they have moved beyond conservative reserve management and Asian countries only to a limited extent, lies in their different economies and liability structures: The Gulf countries’ assets are clean equity with no strings attached, a transformation of below ground capital into above ground capital, kept for future generations and current diversification drives. The Asian foreign assets come from sterilizing dollar export revenues and have a liability in local currency standing against them. Additionally their asset allocation is a function of a mercantilist policy of export led growth and a concomitant undervalued exchange rate – if the dollar should become worthless one day Asia would still have the capital stock that has resulted from the mercantilist policy, the Gulf would stay there with nothing. That’s why risk adjusted returns and capital preservation are much more important to the Gulf than to Asia.

Ashby Monk: GCC SWFs are frequently held up as some of the most secretive. Why do you think this is the case? Is there any credence to the argument that these funds keep asset allocation and investment portfolios secret in order to avoid any local fallout from investments in companies that could be seen to go against cultural or religious beliefs?

Eckart Woertz: Do you know the detailed financial statements of Bechtel, Bosch or other large, privately held companies in the Western world? Of course not, and they would not be eager to part this information with you for various reasons. So why should the Gulf SWFs tell you? After all they are “sovereign”. Never talk about your positions especially when they are large and you may follow strategic acquisitions here and there. And rich people tend to be secretive whether they live in the Gulf or in Switzerland.

But most of the secrecy probably stems from local politics and the above described social contract of the rentier state: bluntly put, you are paying off the constituency with welfare transfers and public sector jobs and in return they should be grateful and not demand participation. If the times are good you do not want them to know and demand too much. If they are bad, you do not want them to blame you for mismanagement. Maybe it is as simple as that. I do not think that religion or culture plays a role; I am not aware of debates in this regard. If you mean Islamic banking, it is overrated. Its similarities with conventional banking are larger than its differences. It is basically giving interest a different name by various legal constructs of “profit sharing” plus some ethically forbidden investments in alcohol, pork and gambling. In any case it is mainly in the retail market where Islamic banking plays some role, not so much in project finance or large internationally operating funds.

Ashby Monk: Thanks, Eckart, for your candid responses. Very interesting.

Mixing Finance and Politics, China-Style

By Ashby Monk

“Claims by Chinese officials that the establishment of CIC is intended to create an investment vehicle for strictly economic purposes are contradicted by many of the facts”, according to the U.S.-China Economic and Security Review Commission(USCC) 2008 annual report released today. The report, which is over 400 pages long, dedicates an entire section to China’s “capital investment vehicles” (i.e. SWFs) and their implications for the U.S. economy and national security.

It makes for an interesting read, as it outlines in great detail the sources of U.S. concern with respect to China’s SWFs.

“China appears far less likely than other nations to manage its sovereign wealth funds without regard to the political influence that it can gain by offering such sizable investments. With an estimated 40 percent of its domestic economy still under government ownership and control, China has long mixed economic and political goals and is likely to do so with its international investments, despite protestations to the contrary” (p.43).

This is a sentiment that came through clearly during our discussion with USCC Chairman Larry Wortzel this past June. At the time, he noted that you can’t understand the CIC without understanding China’s broader national strategic economic objectives. As the report notes:

“In fact, both SAFE and CIC are just two parts of a complex web of state-owned banks, state-owned businesses, and government-run pension funds, all of which draw their money-and receive their directions-from the central government and which promote a state-led development agenda” (p.44).

While the CIC does get quite a bit of attention, the report casts a very critical eye on SAFE, which it refers to as a “Shadow Sovereign Wealth Fund”:

“…SAFE is determined to prove it is the more astute and capable institution and, in particular, that it can obtain the same or better returns than CIC…SAFE now is competing with CIC for investments and brings some significant advantages to this second phase of the contest. SAFE has far deeper pockets than CIC, which at the moment has only about $90 billion in remaining cash to invest abroad. SAFE’s head sits on CIC’s board, with access to sensitive information about its planned investments” (p.53).

As we have flagged several times, the report goes into some detail about SAFE’s politically motivated investment in Costa Rican bonds:

“In 2008, a Chinese government agency promised to purchase Costa Rican government bonds in return for Costa Rica’s severing of diplomatic ties with Taiwan. That same agency invested $2.5 billion with TPG Capital, a Texas private equity firm.172 In addition, it bought approximately $2 billion in British Petroleum shares and approximately $2.5 billion in shares of France’s oil and gas company, Total S.A.173 Late in 2007, it made several small purchases of shares of three Australian banks..This government-owned investor, however, was not CIC, China’s official sovereign fund, but a secretive offshoot of SAFE, the official manager of the nearly $2 trillion of foreign exchange reserves China has amassed” (p.52).

“Both Taipei and Beijing have used ‘checkbook diplomacy’ in the past, but this is the first confirmed time that China has used its foreign exchange funds as a means of directly applying political pressure” (p.53).

In general, the report is a compilation of all of the fears surrounding CIC, SAFE and SWFs. It outlines the areas where confusion and misunderstanding remain between SWFs and recipient countries. It also serves as a wake up call to those that thought the ‘SWF debate’ had been resolved with the release of the Santiago Principles. Clearly, the trust building exercise that is at the heart of the IWG process has not yet had its intended effect on the USCC.

However, distrust is perhaps to be expected at the USCC, which was created in October 2000 around the time that China topped national security concerns. Indeed, some perceive the commission to be anti-China, viewing the Sino-American relationship as an ongoing and escalating rivalry.

In short, this report says is that China’s SWF may mix the political with the economic in ways similar to the methods of other Chinese institutions. However, as is noted, this is a feature that is particular to China. Once again this highlights the importance of distinguishing between SWFs–they are not all the same.

Q&A with Christian Braun, Creator of SWF Radar

By Ashby Monk

The Oxford SWF Project is a source of open discussion and engagement on the topic of SWFs. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we offer the fourteenth instalment of our segment: “Q&A with a SWF expert, stakeholder or policymaker”. We are pleased to welcome Christian Braun, creator of SWF Radar. While Mr. Braun’s views are his own, his perspective helps to further debate and facilitate understanding.

Ashby Monk: It is a pleasure to have you with us, Christian. I think anybody reading this today will agree that SWF Radar has been a phenomenal resource. I’m curious, what sparked your interest in SWFs and led to the idea for the site?

Christian Braun: In 2001 I helped launch a magazine on corporate responsibility and related topics. This introduced me to the issue of the use of non-financial investment criteria, specifically social and environmental criteria, by public pension funds, something in which I have had a keen interest ever since. When the debate about SWF investments kicked off in 2007, I saw parallels with earlier arguments about public pension fund investments. So I decided to track news stories about SWFs to observe how the debate and the issues evolved. SWF Radar was the upshot of this.

Ashby Monk: To the extent that you can talk about your readership, who is interested in SWFs?

Christian Braun: Often the networks that sent the most visitors on any given day were those of the big financial firms that provide investment services for SWFs. The readers who visited the site most regularly came to a great degree from these firms. The site had regular visitors from all sorts of different firms and institutions, though, from SWFs and central banks through to small organizations without an identifiable network location.

Ashby Monk: I can’t imagine anyone has followed SWF news more than you. How have perceptions changed over the past year?

Christian Braun: Looking just at the United States, SWFs were treated with suspicion by the administration and by official agencies such as the S.E.C. until a few months into 2008. By around June 2008, though, the U.S. Treasury in particular had started switching the focus away from any potential risks associated with SWF investments toward the need to avoid protectionism. This probably helped tone down the rhetoric about SWFs in the press. But it will take another wave of SWFs investments to test exactly how perceptions and attitudes have changed since last fall and winter. The fact that the launch of the IMF’s GAPP guidelines was pretty much ignored by the press does suggest, though, that the perception of SWFs as something threatening may have eased. It will be interesting to see what happens under the Obama administration, especially given that Lawrence Summers, who is one of Obama’s top economic advisers, helped kick off the present SWF debate with his piece in the Financial Times in July 2007 on how SWFs, as he saw it, “shake of the logic of capitalism.”

Ashby Monk: Do any news stories stand out in your mind as being critical to the shaping of the SWF debate over the past few years?

Christian Braun: The Lawrence Summers piece I just mentioned, though not a news story, was important. This spelled out several of the central issues and even pulled the likes of Gazprom, a state-owned enterprise, into the debate about the investment of sovereign wealth. Another thing that was itself newsworthy was 60 Minutes’ interview with Gao Xiqing, general manager of the China Investment Corporation, broadcast in April this year. The CIC had been vilified by certain parts of the U.S. media, notably by Lou Dobbs on CNN. So seeing its soft-spoken, self-effacing investment chief give a candid interview in fluent English to a major U.S. current affairs program I think did a lot to blunt the criticism and reduce the scaremongering. One news piece that had little resonance but that I think was extremely important was the Financial Times’ report in September this year that claimed that China’s State Administration of Foreign Exchange had used its funds to push Costa Rica to sever ties with Taiwan and establish relations with China. I saw you brought this up in the Q&A you published earlier in November with the OECD observer to the IMF’s International Working Group.

Ashby Monk: Do you think the media has done a good job of covering SWFs? In what way has coverage been lacking?

Christian Braun: As I mentioned earlier, there was almost no coverage of the launch of the IMF’s GAPP guidelines. I’m not sure how much coverage these guidelines deserve, and I wrote at length on a couple of occasions on SWF Radar about why I think the GAPP will not work. But I still found it strange that there was such a lack of coverage. That is the one thing I’d point to and say that coverage was not what it maybe should have been.

Ashby Monk: SWF Radar is great in part because it amalgamates the news without extensive commentary. Can I coax a bit more commentary out of you now? Are you at all concerned by the rapid growth in SWFs? Why or why not?

Christian Braun: I am not at all concerned. I would, though, be very concerned about a move toward protectionism. This is not to say that I think SWFs are necessarily a good thing, especially since their inability to engage in governance-related activism for fear of triggering political alarm bells may be a drag on the corporate governance movement, of which I am a keen supporter.

Ashby Monk: What’s next for you?

Christian Braun: SWF Radar eventually started taking up much more of my time than I anticipated, so I’m now pleased to be able to focus more closely again on my freelance work in corporate publishing and corporate communications. I’ll be devoting some of the time I’ve now freed up to the book I’m writing on private property and money. It’s something I’ve been working on for a while now, and I expect to have the first draft finished by April 2009.

Ashby Monk: Thanks, Christian, and good luck in your future endeavors. We’re all grateful for your work on SWFs to date. Keep in touch…

SWFs Are a Symptom, Not the Problem

By Ashby Monk

I have been in Oxford and London all week conducting / collecting interviews for our project on SWFs. It’s hard to put into words the sentiments among some of our interviewees; so I won’t. I’ll let one of the interviewees do it: "Here is a quote for you. A global depression is going to happen. You can print that." Not everybody we met with during the week was this pessimistic. Nevertheless, all wanted to reflect broadly on an incredible year in financial markets; and the role of SWFs therein.

Who did we meet? I can’t say exactly because confidentiality agreements restrict our ability to disclose names. That said, some will eventually appear in print. What I am allowed to say, however, is that we met with senior bankers, bureaucrats, journalists, and SWF stakeholders in and around the City of London.

An interesting theme developed during these discussions: SWFs are seen to be a symptom of, and a (small) solution to, the current economic and financial crisis. Here is the way the discussion usually unfolded. Yes, SWFs are a small comfort to the current financial system during this crisis. They are owners of capital in a system that is seriously decapitalized. However, SWFs, by their very nature, are also a symptom of the global economic malaise characterized by imbalances. For a variety of reasons, countries have accumulated massive current account surpluses. These surpluses are not seen to be sustainable, but SWFs are nonetheless a useful tool for managing these imbalances. In short, we cannot understand or even hope to solve any problems we have with SWFs without first understanding and indeed solving the larger problems that have underpinned the rapid growth of these funds: imbalances.

The natural question that followed: who is to blame for the global imbalances and how can they be unwound? Once again, two of our more opinionated interviewees offered interesting insights. First, “we need to break the oil dependence and stop the over-consumption in the West”. And, second, “Arabs need to start buying large chunks of China.” While the two points are perhaps oversimplifications of the problems we face, they do nonetheless capture the nature of the larger considerations at play.

So, while SWFs do present a series of new concerns to Western policymakers (national security, nationalization of markets, state capitalism, etc.), they are also symptoms of much larger global economic problems. As such, any new national SWF policies should take into consideration these larger issues. Otherwise, these policies will only be treating symptoms. In this case, our patient, the global economy, will only get sicker.

Q&A with Zhang Ming, Scholar at the Institute of World Economics and Politics

By Ashby Monk

The Oxford SWF Project is a source of open discussion and engagement on the topic of SWFs. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we offer the thirteenth installment of our segment: “Q&A with a SWF expert, stakeholder or policymaker” (see the Q&A archive). We are pleased to welcome Zhang Ming, Scholar at the Institute of World Economics and Politics within the Chinese Academy of Social Sciences. While Mr. Zhang’s views are his own his perspective helps to further debate and facilitate understanding.

Ashby Monk: It is a pleasure to have you with us today, Ming. Part of what we are trying to do is canvass all points of view on the topic of SWFs. With this in mind, what is your reading of the internal Chinese debate on SWFs and the CIC?

Zhang Ming: Since the establishment of CIC in September 2007, there are 3 hot issues in internal debate. First, why CIC is independent from both PBOC and Ministry of Finance? This point raises two questions: Is 200 billion USD CIC’s capital or its liabilities? Why should CIC pay the interest of special government bonds? Second, why did CIC merge Central Huijin as its major subsidiary? Third, whether the poor performance of CIC in the last year is due to the fluctuations of international financial market, or due to CIC’s poor decision-making process? The people have not formed consensus about these questions yet.

Ashby Monk: That’s interesting. Based on my discussions with Western policymakers, many were also interested in understanding the CIC’s decision-making process so as to better gauge its intentions. Officially, the CIC intends to achieve higher returns on foreign exchange reserves. Unofficially, do you see any scope for using the CIC to advance broader Chinese goals, such as helping domestic companies move overseas or extracting political concessions?

Zhang Ming: In my personal opinion, I think that CIC is trying to behave as a pure financial investor. However, the Central Huijin, one of CIC’s subsidiaries, is a typical strategic investor. For example, Central Huijin is the major shareholder of China Development Bank, and the latter is responsible for facilitating Chinese state-owned enterprises to do overseas investment. In the last year, China Development Bank offered a huge loan to Aluminum Corporation of China to help it to buy shares of Rio Tinto. Therefore, if Central Huijin is still the subsidiary of CIC, CIC will continue to be treated as a strategic investor by host countries.

Ashby Monk: Jamil Anderlini of the FT reported in September the State Administration of Foreign Exchange used its assets to extract political concessions from Costa Rica. What’s your reaction?

Zhang Ming: Frankly speaking, every country has been using its domestic resources, including foreign exchange reserve, to maximize its national interest. I don’t know why foreign media have paid so much attention to this issue.

Ashby Monk: Many inevitably ask about the CIC’s internal governance. Can you give us some idea as to how investment decisions are made within the CIC? What is the process, as you understand it?

Zhang Ming: There are a board of directors, a Chinese Communist Party committee, and a management team in CIC. According to the related laws and regulations about Chinese state-owned enterprises, the Party committee is responsible for ideology-related issues and will not interfere with operations. Therefore, it is the management team which forms an investment decision. Before it is implemented, the decision should be passed by the board of directors. If the scale of investment is very large or the implication of investment is very complicated, the final decision might be made by upper government, for example, the State Council. However, the above process is only based on my speculation.

Ashby Monk: By some accounts, the CIC is in enviable position since most of its capital is still sitting in cash. Given the fund has been in existence for well over a year, why has so little of its capital been invested?

Zhang Ming: I don’t think most of the asset of CIC is located in cash. One third of 200 bn USD was used to purchase Central Huijin. Another 20 bn was injected into China Development Bank. As for the rest, most of them have been invested in US government bonds, money market funds, etc. Why is so little of its capital been invested? The historic performance of CIC was so bad, and now the market is so volatile. Due to the uncertainties and the pressure from upper government, CIC is very cautious in making new investment decisions, maybe over cautious.

Ashby Monk: What has the reaction in China been to the Santiago Principles? Do you see the CIC fully implementing them? How about SAFE?

Zhang Ming: At first, CIC did not actively participate in the establishment of good practice for SWF. However, CIC had changed its attitude toward global governance of SWF, and we saw that CIC had joined the making of the Santiago Principles. I think that CIC will try to implement them to improve its overseas investment environment and to gain the trust of host countries. SAFE does not think that it is a SWF, therefore SAFE will not implement the Principles.

Ashby Monk: Thanks, Ming. Very interesting insights.

Q&A with Kathryn Gordon, Senior Economist at the OECD

By Ashby Monk

The Oxford SWF Project is a source of open discussion and engagement on the topic of SWFs. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we offer the twelfth installment of our segment: “Q&A with a SWF expert, stakeholder or policymaker” (see the Q&A archive). We are pleased to welcome Kathryn Gordon of the OECD, and the OECD observer to the International Working Group on SWFs. While Mrs. Gordon’s views are her own, her perspective helps to further debate and facilitate understanding.

Ashby Monk: Thanks for joining us today, Kathryn. Your work at the OECD deals with preventing investment protectionism. (See the OECD Observer report on its SWF work.) In your view, has the OECD project and the IMF’s project with SWFs (for which you were an observer) muted the national level trend towards SWF investment protectionism?

Kathryn Gordon: The OECD and a group of SWFs have developed two sets of guidance – the OECD’s is for recipient country policies toward SWFs and the SWFs’ is for their own governance and transparency practices (the Santiago Principles). These two sets of guidance are flip sides of the coin in the trust-building process. But trust-building is an ongoing process and now both groups will want to redouble their efforts to make good on their commitments. The OECD countries would be both pleased and honored to continue collaborating with SWFs on this task.

You ask about the direction of the trend on protectionism – there is no one single direction, rather a mix of eddies and cross currents. Right now, policy makers are genuinely afraid that a protectionist backlash will spook markets even more. Furthermore, I am sure that most OECD countries would welcome with open arms SWF investments, especially in finance. However, as real economy impacts start to bite, protectionist impulses become much harder to resist.

Governments should resist these impulses. In periods of crisis, protectionism is the easy way out. It gives policy makers and their constituencies the false comfort of thinking that they are dealing proactively with issues. What’s really needed now are: 1) palliative measures to assuage, where possible, the genuine suffering caused by this upheaval; and 2) international collaboration to re-build our financial and economic institutions on more solid foundations. Lashing out at foreign investors, including SWFs, doesn’t help us on either of these two fronts.

Ashby Monk: What, in your view, is it about SWFs that lead some nations to consider protectionist policies? Are there any specific SWFs that are of concern to OECD members?

Kathryn Gordon: For the record, it is worth noting that the vast majority of measures taken by OECD countries to block foreign investments have been directed against investors from other OECD countries. For the most part, SWFs have deliberately avoided high-profile investments that might attract unwanted political attention. It is true that their recent forays into the financial sector attracted a great deal of attention, but these were actively sought out by recipient countries and are widely agreed to have had a stabilising effect on OECD markets, even though they turned out to be (at least for now) bad investments for the SWFs and their home societies.

To answer your question, I would note that OECD societies are like any other – they are afraid of what they don’t know and don’t understand. Furthermore, many OECD countries are used to dominating international markets and receiving significant investments from new non-OECD investors (from SWFs or others) takes a little getting used.

These fears and suspicions are not backed up by the historical record – there have been no known problems associated with a SWF investment in the OECD area. And, SWFs can do much to allay fears by explaining their missions, investment strategies and risk management practices. This is what the Santiago Principles encourage them to do.

Ashby Monk: It was recently reported that China’s State Administration of Foreign Exchange used its assets to extract political concessions from Costa Rica. As I understand it, this is a case where a SWF has used its financial capital for political ends, which is the primary concern of Western policymakers. What’s your view? Given your job is to try to minimize protectionist policies, is this investment an impediment to ensuring unfettered markets?

Kathryn Gordon: I have no specific knowledge concerning the truth of these allegations, but, in general, it is true that mixing geo-political objectives with financial objectives creates a bad name for government-controlled investments. Governments, and not just China’s, have a long history of mixing business and politics in foreign investment. If governments are involved in business transactions at all, one can assume that political objectives will creep in at some point.

This is not necessarily a problem. Political objectives lie in a continuum between acceptable and unacceptable goals. On the acceptable side, most people would agree that governments have a legitimate role in helping their citizens to save for retirement and that public pension funds are a legitimate tool for pursing this objective. Who would wish to prevent public pension funds from availing themselves of the diversification possibilities offered by foreign investment? Governments also pursue other policy goals through international investment. For example, an Abu Dhabi SWF recently invested in a Japanese health care facility with a view to securing treatment capabilities for health problems (such as diabetes) that are commonly found in Middle Eastern populations. This investment helps Abu Dhabi achieve a political objective in the area of public health. Again, this political objective – protecting public health – has broad acceptance in all societies.

The challenge for government controlled investors, including SWFs, is to: 1) be transparent about their policy purpose; 2) adopt governance arrangements that minimise the scope for inappropriate political interference while also allowing for necessary political accountability. The SWFs’ new principles contain guidance to help them do this. OECD countries would welcome an opportunity to explore with SWFs and others the question of the “grey zone” between acceptable and unacceptable political objectives – what policy objectives are in this zone and how do we manage possible conflicting policy interests between home and recipient countries?

Ashby Monk: Thanks, Kathryn, for taking time out of your busy schedule to answer my questions. Your insights are enlightening.


This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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