Transparency: a double edged sword for SWFs

August 20, 2009

Sovereign wealth funds, facing criticism from Western regulators and politicians for their opaqueness, are keen to open up their books.

While Norway is a leader in the SWF league of transparency, other countries like China have started publishing annual reports.

But is transparency all good for SWFs?

Gary Smith, head of  central banks, supranational institutions and sovereign wealth funds at BNP Paribas Investment Partners, says the pressure to open up has raised unseen consequences of having to face domestic pressures.

In his analysis, the relationship between the level of assets under management and the level of public comfort is assymetric. As shown in this chart, when their AUM rise, the public is happy. However, if AUM fall at all, they become extremely unhappy.

His recent trip to Singapore has confirmed this. A taxidriver complained to him about the poor performance of the country’s SWF, GIC.

“I’m quite sure it’s the first time in 29 years that taxi drivers in Singapore have been talking about the performance of the GIC,” he says.

John Nugee, head of official institutions group at State Street Global Advisors, says pressure from domestic audiences could change SWFs investment horizon.

“The level and tone of some of the criticism by national media for high profile losses might even jeopardize their ability to take the long-term investment positions that have given them such a comparative advantage,” he says.

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Very interesting! Another example of the Law of Unintended Consequences ?

Posted by emma ballard | Report as abusive