Now more than ever, open investment policies benefit all countries, including the United States, a top Treasury Department official told USCIB members at a May 8 briefing in New York. Deputy Treasury Secretary Robert M. Kimmitt said the U.S. was concerned at rising barriers to investment in overseas markets and would work to curtail these, while seeking to keep U.S markets open.
Mr. Kimmitt said the U.S. was also working with the International Monetary Fund and the Organization for Economic Cooperation and Development to develop best practices for foreign investment from sovereign wealth funds, including standards of transparency and governance.
The briefing was hosted by law firm Sullivan & Cromwell at its Wall Street-area headquarters. Firm Chairman Rodgin Cohen presided along with USCIB President Peter M. Robinson.
Sovereign wealth funds have existed since the 1950s but only recently taken on a leading role in international finance, especially as countries reaping the benefits of export and oil booms seek to gain higher returns. Mr. Kimmitt said sovereign funds currently had an estimated $3 trillion in assets – a number he said could grow to over $12 trillion over the next five years.
“Sovereign wealth funds have been a force for good for the global economy,” stated Mr. Kimmitt. “They’ve been patient, long-term investors, not highly leveraged, they don’t shift asset allocations in times of distress. Even those who have raised the most significant hypothetical concerns cannot point to a single example in the past 55 years where a sovereign wealth fund has invested for other than commercial purposes.”
Nevertheless, he said the U.S. and other host countries “need to be vigilant as these funds grow significantly both in number and size.” Mr. Kimmitt said existing national security and antitrust rules would largely serve to address any concerns should sovereign investors seek to extend their role beyond this traditionally passive approach. But he also pointed to the IMF and OECD efforts as a way to increase openness on both sides of the investment equation.
Representatives of some two dozen sovereign wealth funds met with IMF officials on May 1 to begin work on transparency and governance guidelines for such funds. Mr. Kimmitt told USCIB members he expects the final set of guidelines to be presented at the IMF’s fall meetings.
Meanwhile, building on its established expertise in the area, the OECD is developing guidelines host governments on maintaining market openness in the face of new forms of investment such as sovereign wealth.
In introductory remarks, Mr. Robinson noted USCIB’s active role in helping Congress strike the right balance between market openness and national security in its recent revisions to the Exon-Florio law. He also cited a recent International Chamber of Commerce paper, “Recommendations to Safeguard Freedom of Investment,” which he said presented a strong framework for dealing with new investment challenges like sovereign wealth.
On May 13, as part of their high-level Transatlantic Economic Council meeting in Brussels, the U.S. and the European Union sought to quell rising protectionist sentiment in key markets by declaring their openness to outside investment, including sovereign wealth funds. They issued a joint statement condemning barriers to capital flows except on ground of protecting national security. Any such restrictions must be “transparent, predictable and proportionate,” they said.