French report explores sovereign fund guidelines
PARIS, May 22 (Reuters) - Sovereign wealth funds are key investors which France needs to attract but states where such funds are based must be open to French investment in return, a report prepared for the Economy Ministry said on Thursday.
Economy Minister Christine Lagarde said France would during its six-month EU presidency, which begins in July, invite representatives of sovereign funds and other European Union countries to discuss some of the report's suggestions.
The report said sovereign funds were a firm fixture on the international financial stage and would only grow in size and importance in the coming years, making it vital for France and other countries to adopt guidelines on how to treat them.
"Sovereign funds can play a positive role at the heart of the international financial system for the country of origin as well as for the recipient countries," it said.
It cited predictions that such funds would have $10 trillion under management by 2013 from about $3 trillion currently.
Investment by funds could help finance essential investment, for example in infrastructure, the report said, adding that they were also "a particularly precious investor in the face of the current (financial) crisis."
France was one of many countries competing to attract such investors and had to seek to overcome at least one potential handicap, it said.
"The main weakness of France is its image -- that of a country which is still reluctant to receive financial investors, notably sovereign funds," the report said.
"This perception does not correspond to the reality of our economy nor to our legislative and regulatory framework."
It said France should apply the same rules for sovereign funds as for hedge funds or equity funds as long as these funds also respected certain conditions.
Key among these was the principle that countries where sovereign funds were based should be open to French investment and that they should have stock market rules which were comparable, for example in the field of takeover regulation.
"Opening up to sovereign funds does not mean that France should renounce the need to protect our strategic interests," the report said.
"For this, the fundamental orientation should be the application of the principle of reciprocity when it comes to openness to our investors, regulation of foreign investments and the regulation applicable to takeovers."
The report on the strategy France should adopt towards sovereign funds was issued at a time when work is already under way at an international level to produce best practice guidelines for state-owned funds.
The International Monetary Fund and 25 sovereign wealth funds earlier this month set up a working group to fix guidelines to address concerns expressed both by countries at the receiving end of such flows and funds themselves.
Many countries fret that sovereign wealth funds could pose a national security threat if they were to invest in certain sensitive sectors or that they could destabilise markets.
For their part, sovereign wealth funds -- many of which are based in major oil-producing nations and in key Asian exporters, such as China -- are concerned about protectionist restrictions on their investments. (Reporting by Swaha Pattanaik; editing by Stephen Nisbet)
