Wealth funds meet in Chile hopes to agree on guide

By Lesley Wroughton

WASHINGTON, Aug 30 (Reuters) - A meeting of the world's sovereign wealth funds in Chile next week hopes to reach an understanding on principles that will guide investment practices of the state-owned funds, the International Monetary Fund said on Saturday.

The gathering of 26 wealth funds in Santiago on Monday and Tuesday is the third this year of a working group looking to develop voluntary best practices for the growing number of sovereign wealth funds that now control assets worth trillions of dollars.

"The meeting aims to reach an understanding on the Generally Accepted Principles and Practices on sovereign wealth funds in advance of the IMF-World Bank Annual Meetings on Oct. 10-13," the IMF said.

The guidelines will be considered by the IMF's steering committee, the International Monetary and Financial Committee (IMFC), on Oct. 11 during the IMF meeting in Washington.

The working group is co-chaired by Hamad al Suwaidi, undersecretary of the Abu Dhabi finance department and a director of the Abu Dhabi Investment Authority, and Jaime Caruana, director of the IMF's monetary and capital markets department.

Of the sovereign wealth funds, China, Kuwait, Norway, Russia, Singapore, and the United Arab Emirates are among the largest. Other countries that are members of the working group include Libya, South Korea, Chile, Botswana, Canada, Norway, Australia, Ireland and the United States.

Saudi Arabia, Oman and Vietnam are observers.

Sovereign funds have existed since the 1950s but with the accumulation of currency reserves in large Asian exporting countries and in oil-producing nations, they have grown dramatically in size and number.

The funds control between $2 trillion to $3 trillion in assets, and some estimates put their assets at $10 trillion by 2012.

Little is known about the assets and investment strategies of these funds, raising concern in countries where they invest, such as the United States, that they are potentially a destabilizing force in global markets.

Some recipient countries have also cited national security concerns should wealth funds seek to obtain sensitive information through their investments.

The IMF has said there is no clear evidence to support such concerns.

During the current financial turmoil, which began in the U.S. housing market, wealth funds have shown they are market stabilizers, investing billions of dollars in major Western banks whose balance sheets were hit by the market crisis.

The funds themselves are concerned about protectionist restrictions on their investments, which could hamper the international flow of capital. (Reporting by Lesley Wroughton; Editing by Xavier Briand)