Business | Investment
Sovereign funds should be allowed to operate freely
Participants in Global Investment Forum praise role of UAE in stabilising international financial markets.
- By Ahmed A. Elewa, Senior Reporter
- Published: 00:53 March 6, 2008
Abu Dhabi: Sovereign Wealth Funds (SWFs), which have come under veiled attack in recent months, should be allowed to operate freely, without any bindings, economists told a conference here on Tuesday.
Participants at the UAE Global Investment Forum praised the constructive role played by the UAE's sovereign wealth funds (SWFs) in stabilising the international financial markets.
Finance ministers of the European Union had ignited a heated debate on the objectives and codes of practice of SWFs. Many organisations such as International Monetary Fund and the Organisation of Economic Cooperation and Development are in the process of formulating the codes of practice.
Role of politics
"If politics becomes the driver of economic activities and capital flows, this can affect the freedom required in international markets, which cannot take an arbitrary course of action," Nasser Saidi, chief econ-omist at the Dubai International Financial Centre, said.
According to a recent report by Citigroup, SWFs currently account for $3 trillion worth of funds, of which Abu Dhabi alone accounts for $875 billion. This ranks the UAE on the top of sovereign overseas investors, with transactions exceeding $1 trillion if Dubai and Sharjah are taken into account.
"If codes of practice are required for SWFs, then similar codes are also needed for other vehicles such as hedge funds and private equity funds, which is not the case," Saidi said.
The increasing role of SWFs came as a direct impact of the growing foreign exchange reserves in many countries where huge current account surpluses have been accumulating, such as China, due to its increasing trade surpluses, and the Middle East, where oil revenues have increased fivefold since 2004, according to Eirvin Knox, Abu Dhabi Commercial Bank's chief executive officer.
Forex reserves
Accordingly, global foreign exchange reserves have grown by 140 per cent over the past five years, according to Citigroup.
The share of SWFs among global financial assets is minute, whereas equities account for more than $50 trillion, and asset management industry accounts for more than $48 trillion, yet the impact of these funds have been substantial in supporting the capital base of many leading international financial institutions impacted by the subprime mortgage crisis, participants said.
"SWFs were able to play that role without arising any worries about controlling stakes, or taking part in management, as the acquired portions are not that significant in any given individual entity," Andrew Jeffreys, editor in chief of the Oxford Business Group said.
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