Statement at the OECD Ministerial Council Meeting

Madam Chair,

Sovereign Wealth Funds have increasingly been the subject of international debate. In my view the debate is moving in the right direction. Wariness in recipient countries about a lack of transparency and non-financial objectives for the investments has given way to a more nuanced understanding of the key issues.

Perhaps just as importantly, several sovereign funds have shown a greater willingness to address concerns raised in recipient countries.

The OECD has been and is the main forum for policy analysis and development of guidance on good practices for investment policy. The OECD is playing a crucial role in reminding us of the benefits of a free and open investment climate. The Report by the Investment Committee on “Sovereign Wealth Funds and Recipient Country Policies” is a positive contribution. It addresses the concerns raised about such funds and puts them into an appropriate perspective.

I think the cooperative effort, facilitated by the IMF, to identify and a draft a set of voluntary, generally accepted principles and best practices for Sovereign Wealth Funds will also prove useful. 

Sovereign funds are not a new phenomenon – the Kuwait General Reserve Fund was established as early as in 1953 – but in recent years they have become prominent participants in financial markets. With deep pockets, a long investment horizon and a strong risk-bearing capacity, such funds can provide diversity and contribute to better functioning financial markets. Many Sovereign Wealth Funds have played a positive role in the recent credit and banking turmoil.

The Norwegian sovereign fund, which amounts to nearly 400 billion USD, is built on petroleum revenues and will help us finance pension expenditures in the future. It is by and large referred to in positive terms and is often cited as an example to be followed. The following five factors are important in that respect:

There is an explicit aim to maximise financial returns. We have no hidden political agenda.
The Fund is a financial investor with non-strategic holdings. The average ownership share is less than 1 per cent.
There are clear lines of responsibility between political authorities and operational management. Individual investment decisions are not politicised.
We have a high degree of transparency in all aspects of the Fund’s purpose and operation. And finally,
The Fund’s Ethical Guidelines are transparent and predictable, and are based on internationally recognised standards, such as the UN Global Compact and OECD principles and guidelines. The Ethical Guidelines recognise the objective of sound financial return, along with the obligation to respect fundamental rights of those that are affected by the companies in which the Fund invests.
I believe transparency is the key to reaching a common understanding between investors and recipient countries. Transparency is important for several reasons. It builds trust – both on the international scene and domestically. In fact, it would be impossible for our government to get support for putting aside a budget surplus of 15 to 20 per cent of GDP in a fund without giving the stakeholders insight into how the money is managed. This is a matter of accountability.

However, transparency also has to go both ways. If recipient countries set up screening processes to address legitimate national security concerns, there must be transparency with respect to how such screening decisions are made, by whom and under which criteria. Lack of transparency can lead to suspicions of financial protectionism, introduce an element of uncertainty to the investment process, undermine investor confidence, and may ultimately reduce the relative attractiveness of non-transparent recipient countries.

To conclude, let me reiterate the importance of maintaining an open investment climate while also addressing and attempting to allay concerns related to the funds. I look forward to the final report on the Freedom of Investment project in early 2009.