State-owned sovereign wealth funds armed with billions of dollars are welcome to invest in the European Union but should be more open about their motives and methods, the bloc's executive arm said on Wednesday.
Some 30 countries have set up funds to use a total cashpile of about $2.5 trillion built on commodity and energy exports, growing to $12 trillion by 2015, according to some estimates. But EU states such as Germany and France worry that funds from Russia, China and elsewhere may be investing in the EU to influence strategic companies like utilities rather than for purely commercial reasons. This worry is also compounded by difficulties EU firms can face in investing in countries like Russia and China.
"Sovereign wealth fund countries must acknowledge that their growing weight in global financial markets brings responsibilities," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told a news conference.
The European Commission put forward principles it wants included in a voluntary global code of conduct for SWFs being drawn up by the International Monetary Fund by October. EU concerns so far appear unfounded, however.
"Let's be brutally frank about this. Sovereign wealth funds have been positive and long-term investors ... there is no, as far as I am aware, no instance of sovereign wealth funds acting in any manner other than responsibly up until now," Internal Market Commissioner Charlie McCreevy told the news conference.
"Some people are afraid of what might happen in the future," McCreevy added. The Commission also wants a common approach to avoid unilateral action by member states that could distort the bloc's internal market.
THE EXECUTIVE SAID A CODE SHOULD CONTAIN KEY PRINCIPLES:
-- a clear allocation and separation of responsibilities
-- the fund must operate autonomously and define its investment policy
-- the fund must disclose annually its holdings and asset allocation
-- it must state the size and source of resources
-- it must disclose any use of leverage and currency composition. Many SWFs say they will abide by a code but the Commission has warned that unless a code works, it reserves the right to restrict direct investments through legislation.
"There is always the reserve of action but I think that would have to be effectively taken on a global level rather than at European Union level. Any other way would lead to very negative counteractions by other people," McCreevy said. Almunia said EU leaders were expected to endorse the Commission's guidelines when they met next month.