newsminer.com

WASHINGTON — The International Monetary Fund convened a meeting of 25 sovereign wealth funds visited Washington, D.C., last week to discuss the development of a voluntary set of investment guidelines for government-owned funds.

The IMF is trying to establish a code of conduct for sovereign funds to dispel growing concerns by Western nations about their massive accumulation of wealth, fed by soaring oil prices and trade surpluses.

Among the participants was the Alaska Permanent Fund Corp. The Permanent Fund’s executive director, Michael Burns, says the state-owned corporation is considered a proxy for U.S. sovereign funds.

“We have a size and we act as much like one as anything in the United States,” he said. “I guess I would call us a sub-sovereign fund.”

At the April 30-May 1 meeting, the IMF held up Alaska’s $39 billion investment fund as an example of how sovereign funds could be both transparent and open about their operations while still earning a healthy return. “The message that people are seeing in us is that you can be successful and transparent at the same time,” Burns said.

The weak dollar and struggling financial markets have made the United States and the European Union attractive destinations for sovereign funds to park their money. However, the rising influence of the funds, many of which are in Asia and the Middle East, is fueling concern about their potential to destabilize the market.

“There’s a great deal of concern about some of the investments the sovereign wealth funds have made,” Burns said. “The international capital markets are very anxious to keep the flow of capital flowing, but countries are worried about the money being used to influence domestic markets and politics.”

IMF officials hope a voluntary agreement on governance and transparency guidelines will ease the concerns of countries receiving sovereign fund investments. The guidelines are expected to ask sovereign funds to agree to invest solely on a commercial basis. At the heart of the issue is the specific countries that are expanding their influence through the use of sovereign wealth funds, including China, Russia, Saudi Arabia, Iran, Libya, Venezuela and Sudan.

Government-controlled investment funds are worth between $2 trillion and $3 trillion, but their value is expected to grow to $12 trillion by 2015. The sheer size of the capital investments the funds could make in the future both enthralls financial experts and strikes fear in some members of Congress.

“There have been major investments in the U.S. and people are scratching their heads worried that it’s something unhealthy,” Burns said. “This new source of capital is invaluable, but there’s that nagging thought that something could go wrong.”

U.S. Sen. Charles Schumer, D-N.Y., has warned Congress could consider legislation to address the issue of transparency if sovereign funds don’t adopt a voluntary code of conduct soon. The IMF and other international finance organizations want to avoid protectionist legislation that could hamper investment opportunities and harm the international flow of capital. “I think what everyone is trying to get to is a level of comfort that will facilitate this flow of capital,” Burns said.

Burns expects the overwhelming majority of the funds will eventually agree to a set of best practices, if only to keep overzealous lawmakers in the U.S., and elsewhere, at bay. “The sovereign wealth funds are looking for places to responsibly invest their money,” he said. “They don’t want to be excluded from countries, they don’t want to be overregulated, so I think there’s enough incentive on both sides that there’s a very broad middle ground.”

The IMF is expected to release a draft of the best practice proposal before its annual meeting in October. Like about 70 percent of the biggest sovereign wealth funds, the Permanent Fund derives its strength from the price of crude oil. “The overwhelming majority of the participants are like Alaska in that their wealth comes primarily from natural resource development,” Burns said.

The Permanent Fund receives 25 percent of the royalties from oil production in the state. But Alaska is in the minority among sovereign funds — along with Norway — in making public the fiscal details of its assets and investment strategy. “The source of their money is pretty opaque,” Burns said of most other sovereign funds.

The Permanent Fund, which ranks about 12th in terms of size internationally, received high marks — 94 out of a possible 100 — in a recent Peterson Institute study of sovereign wealth funds. The Washington-based think tank judged 44 international funds on their structure, governance, transparency and behavior.

This isn’t the first time other nations have looked to Alaska as an example. Representatives from Azerbaijan visited Juneau when that country established its $2 billion investment fund.