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Archived News - March 2008
3/31/2008
Linaburg-Maduell Transparency Index
The Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell.
The Linaburg-Maduell transparency index is a method of rating transparency in respect to sovereign wealth funds. Pertaining to government-owned investment vehicles, where there have been concerns of unethical agendas, calls have been made to the larger “opaque” or non-transparent funds to show their intentions. As of March 2008, the Government Pension Fund-Global of Norway ranks second among the largest sovereign wealth funds with approximately US$ 380 billion, this fund also ranks among the highest in transparency.
Norway currently leads the pathway to reducing the need for a code of conduct, possibly to the benefit of all sovereign investors. This index of rating transparency was developed around this fund, as it is known to be the pinnacle of clear investment intentions.
This index is based off ten essential principles that depict sovereign wealth fund transparency to the public. The following principles each add one point of transparency to the index rating. The index is an ongoing project of the Sovereign Wealth Fund Institute. The minimum rating a fund can receive is a 1, however, the Sovereign Wealth Fund Institute recommends a minimum rating of 8 in order to claim adequate transparency. Transparency ratings may change as funds release additional information. There are different levels of depth in regards to each principle, judgment of these principles is left to the discretion of the Sovereign Wealth Fund Institute.
| Point |
Principles of the Linaburg-Maduell Transparency Index |
| +1 |
Fund provides history including reason for creation, origins of wealth, and government ownership structure |
| +1 |
Fund provides up-to-date independently audited annual reports |
| +1 |
Fund provides ownership percentage of company holdings, and geographic locations of holdings |
| +1 |
Fund provides total portfolio market value, returns, and management compensation |
| +1 |
Fund provides guidelines in reference to ethical standards, investment policies, and enforcer of guidelines |
| +1 |
Fund provides clear strategies and objectives |
| +1 |
If applicable, the fund clearly identifies subsidiaries and contact information |
| +1 |
If applicable, the fund identifies external managers |
+1 |
Fund manages its own web site |
| +1 |
Fund provides main office location address and contact information such as telephone and fax |
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Developed by Carl Linaburg and Michael Maduell
3/25/2008
ADIC and QIA launch first sovereign wealth fund joint venture
According to Reuters, The Qatar Investment Authority and the International Petroleum Investment Company, a subsidiary of the Abu Dhabi Investment Council, will invest US$ 2 billion in a new fund for global acquisitions, the managing director of IPIC said on Tuesday. Both sovereign investors plan to split the new fund equally in half by each providing US $1 billion. "We plan to invest in all sectors, including oil and petrochemicals," Khadem al-Qubaisi told Reuters by telephone in an interview.
read more: Reuters
3/21/2008
IMF Board Endorses Work Agenda on Sovereign Funds
According to the IMF, "The IMF expects its work on SWFs will provide a public good that may be used by existing and new SWFs to run sound organizations, with good governance structures, robust risk management frameworks, and appropriate transparency. These practices should also help allay some of the prevailing concerns about SWFs, reduce protectionist pressures, and allow the international financial system to remain open."
The IMF's Board has given the go ahead on the creation of a SWF code of conduct. By October they plan to have a code of conduct drafted.
read more: IMF
3/21/2008
Sovereign Wealth Transparency & Investment Strategy
The picture below illustrates the upper echelon of SWFs and their investment approach relative to transparency. This is the institutes's most recent graph.
3/20/2008
US Treasury, Singapore, Abu Dhabi agree on sovereign wealth fund policies
The US Treasury and the governments of Singapore and Abu Dhabi said today they have agreed on a set of principles on sovereign wealth fund (SWF) investing and receiving SWF investments, and said the principles emphasize transparency, non-politicization and avoidance of protectionism. Singapore and Abu Dhabi 'are showing real leadership,' Treasury Secretary Henry Paulson said in a statement after a meeting with representatives from the two nations and their SWFs.
read more: Forbes
3/19/2008
Singapore to act on sovereign wealth funds
The Times reports that, “The Singapore Government has indicated that it is willing to adopt a controversial new code of practice that would regulate the investment decisions of sovereign wealth funds (SWFs) if Western countries commit to not blocking future acquisitions.”
This stems from pressure by Western countries. The International Monetary Fund, European Union and US Department of Treasury are in talks with a number of sovereign funds to hammer out a voluntary code of practice that would offer more transparency and accountability. It seems that the Singapore government is taking a more proactive approach of self regulation.
source: The Times
3/12/2008
Around 44% of Sovereign Assets are managed by External Managers
Pensions and Investments reports that, “Sovereign wealth funds have an estimated $1.3 trillion already in play with external managers, according to a Cerulli Associates report. That amounts to about 44% of the funds’ estimated $3 trillion in total assets, but the report says several managers believe that proportion will decline over time.”
Many sovereign wealth fund outsource their investment operations. The trend will most likely decline as more sovereign wealth funds will want to take direct stakes in equity investments and increase their investment staff. Attracting top talent is now a huge priority for many sovereign wealth funds.
source: Pension and Investments
3/10/2008
Why CalPERS is not a Sovereign Wealth Fund?
by Michael Maduell
There are significant similarities between public pension funds and sovereign wealth funds. They both control vast pools of capital, have tremendous power over company boards, and have varying degrees of government influence. In fact, a number of sovereign wealth funds have names like the Government Pension Fund of Norway and the Australian Future Fund. In addition, a sovereign wealth fund’s end goals and objectives might share similarities to a domestic public pension, like providing retirement benefits; however, there are some differences between the two.
The main disparity between sovereign wealth funds and public pension funds are their funding sources. Sovereign wealth funds are funded by foreign exchange assets stemming from commodity exports or transfers from current account surpluses. On the other hand, CalPERS and other domestic public pensions are funded by employee and employer contributions. Furthermore, the goals of most public pensions are clear, earn a return to fund projected benefit obligations. Sovereign wealth funds have a variety of goals and most have a mandate to earn excess returns, but is that true for all? Like most public pension funds, CalPERS has transparency and clear return objectives, two characteristics that are typically absent in most sovereign wealth funds.
As with any investment organization, CalPERS has engaged in investment restrictions based on management directives. These directives are based on good citizenship principles such as environmental stewardship, advocating human rights, and fair labor standards. A number of public pensions invest in socially responsible funds such as the Domini Funds which prohibit investments that violate fair labor standards and environmental codes. Their choice to not invest in a company is not a political strategy in the sense of influencing a firm to gain a significant competitive or resource advantage. Instead, it may be an attempt to promote certain types of positive behavior that benefits society. Having fair labor standards and sustainable environmental regulations are a benefit to all people. Is CalPERS buying international companies to ensure sure the firms push contracts, supply deals, or to disclose trade secrets to the US government? The answer is, of course not. Asking this same question about a sovereign wealth fund and the answer may be doubtful. What we can say for certain is that some sovereign wealth funds are too opaque to make a valid assumption about their intentions. If these wealth funds were more transparent, this would alleviate the mystery around them, thus ending the debate regarding political and other motives.
Transparency is a huge concern in many of the sovereign wealth fund debates. In contrast, CalPERS and other public pension funds have common characteristics including their willingness to share information regarding their goals, portfolio holdings, and governance to the public. Although some sovereign wealth funds, such as the Government Pension Fund of Norway are exceptional examples of transparency, many are not. It is important to remember that this fund is funded by foreign exchange assets, in particular oil. It is essential to not demonize sovereign wealth funds for choosing a path of non-transparency, this decision must be respected as the choice of an investor. It is equally vital to distinguish sovereign wealth funds from public pension funds. The two might share some common characteristics but they are different investment vehicles and should not be grouped in an identical investor class.
The views in this publication are expressed by Michael Maduell.
Michael Maduell is the Founder and Chairman of the Sovereign Wealth Fund Institute.
www.swfinstitute.org
Back to Michael Maduell's Research
3/6/2008
Defining the Difference between: SWFs, SOEs, and Public Pension Funds
Due to the unprecedented level of news and requests, below there is a table displaying the differences between the major public investor classes.
3/4/2008
US Congress gauges reaction of other countries to rise of foreign government funds
The Associated Press reports that, “As members of Congress monitor investment in the United States by foreign government-run funds, they are investing time in studying how foreign governments do it.
A congressional watchdog agency, the Government Accountability Office, studied how other countries handle foreign investment, including investment by sovereign wealth funds and other state-owned companies.
The GAO's study, released Friday, found that six out of 10 countries surveyed have expressed concern recently about sovereign wealth funds.”
source: Associated Press
3/1/2008
Transparency of Sovereign Investment
by Carl Linaburg
Possible national securities implications of sovereign wealth funds may be relaxed with the aid of transparency. Although there are positive economic effects for both sides of state-owned investment funds, there will always be a question of whether or not the owners of government investment funds will use strategies that conform to their own political or personal agendas.
On one end, the foreign investor seeks to diversify the dominant origin of the country’s wealth, or seeks higher risk than offered by government treasury bonds. On the side of the domestic businesses, the economy is eager for growth, technologies, and new competition. If domestic parties refuse an investment offer by a foreign government, the investor will need to find other opportunities to spread out its wealth. Uncertainties may further lead to the call for regulation on these funds, which could not only be financially hazardous to large funds but could also destabilize the domestic economy. So far the EU and the IMF have been drafting proposals on creating a voluntary code of conduct, having transparency as one of the key tenants. Others argue that it is the duty of the country receiving the foreign investment to draft its own laws.
The Abu Dhabi Investment Authority (ADIA) was founded in 1976 by the late former ruler Sheikh Zayed bin Sultan Al Nahyan. As the rulers of the United Arab Emirates have become aware of their diminishing supply of oil, they have taken measures such as the creation of these funds to ensure future economic stability. ADIA is currently the largest state-owned investment fund at an estimated U.S. $875 billion, which makes up about 20-40 per cent of all sovereign wealth funds. Coincidentally, as ADIA is the largest fund it has low transparency and tracking the investments of ADIA may be difficult. An estimation of the investments ADIA has made in the United States comes close to 20%. If ADIA and other large sovereign wealth funds were to suddenly shift their investment strategies outside of North America, the United States could experience economic destabilization.
Transparency in respect to sovereign wealth funds means that the government owners of these funds voluntarily submit pertinent financial information to the public. Financial documentation supporting transparency provided by fund owners may include balance sheets, historical information, investments, target investments, investment strategies, and legal regulations applied by the home country. This information should be easily accessible and balance sheet statements should be updated on a monthly or quarterly basis. The voluntary release of the foreign investor’s intentions and financial information promotes the security of the domestic public and may reduce the need for a code of conduct. Funds such as the Government Pension Fund of Norway have provided transparency without the use of a code of conduct; the issue is getting the rest to follow in line.
The views in this publication are expressed by Carl Linaburg.
Carl Linaburg is the cofounder and deputy director for the Sovereign Wealth Fund Institute.
www.swfinstitute.org
Back to Carl Linaburg's Research
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