Wealth funds meet in Singapore to allay Western fears

By Kevin Lim

SINGAPORE (Reuters) - Sovereign wealth funds that control an estimated $3 trillion in assets will meet in Singapore this week to discuss a code of ethics aimed at allaying Western fears that their investments are politically motivated.

The International Monetary Fund's international working group of sovereign wealth funds (SWFs) will gather on July 9-10 to thrash out voluntary guidelines that the IMF hopes will be finalized by October this year.

Highly-secretive wealth funds, investment funds owned by national governments, have become increasingly active in buying Western assets in the past year, often armed with cash piles from soaring oil prices and trade.

Several have participated in multi-billion-dollar capital infusions into banks such as Citigroup (C.N) and UBS (UBSN.VX), which were reeling from losses from the collapse of the U.S. subprime mortgage market.

Goldman Sachs estimates U.S. and European banks may need a further capital infusion of more than $200 billion. Analysts say banks have already written off $400 billion in bad investments.

But the funds' growing clout has fuelled political concerns about foreign influence over domestic assets. That could spur protectionism, chilling the climate for foreign investment in the West even as the global economy slows, analysts say.

"It's important to establish some guiding principles. This will help contain the risk of a backlash in the West and also establish some kind of trust between investor and investee," said Chua Hak Bin, chief Asian strategist for Deutsche Bank Private Wealth Management in Singapore.

Analysts do not expect a breakthrough at the meeting in Singapore, which has already agreed with Abu Dhabi and the United States to a voluntary set of principles.

U.S. Deputy Treasury Secretary Robert Kimmitt earlier this year described wealth funds as a force for good, but said their rapid growth warranted a vigilant stance by the U.S. government to ensure they remain "a positive influence".

Australia said last week it will closely examine Chinese bids for Australian miners, while Germany has expressed worries foreign governments may gain access to German technology and it is pushing for European Union-wide laws to regulate SWFs.

"The need for capital in the West is far greater than the urge for SWFs to invest their surplus funds. Therefore, 'rescue efforts' will not be affected, but other non-pressing investment talks will," said Sherman Chan, an economist at Moody's Economy.com in Sydney.

DIFFERENT VIEWS

Wealth funds' disclosure standards vary widely.

Oil-rich Norway's Government Pension Fund publishes its portfolio holdings annually, but others such as the Abu Dhabi Investment Authority, the world's largest, and the Government of Singapore Investment Corp (GIC) refuse to even reveal the assets they manage.

"They probably don't want to have their performance evaluated," Moody's Chan said.