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Monday, February 4, 2008

S'pore backs code of practice for SWFs

S'pore backs code of practice for SWFs
But guidelines should apply to other investors as well, says Tony Tan
By Warren Fernandez, Deputy Editor & Foreign Editor
DAVOS - SINGAPORE supports the initiative to establish a code of best practices for sovereign wealth funds (SWFs), which would help ease concerns about their operations, Dr Tony Tan has said.
The deputy chairman of the Government of Singapore Investment Corporation (GIC) disclosed that Singapore was among several SWFs which had been asked by US Treasury Secretary Henry Paulson last October to offer suggestions for guidelines being drawn up, and had thrown up some ideas.

Among its suggestions: any new code should neither be overly prescriptive nor a one-size-

fits-all affair, given the wide diversity of funds which were labelled SWFs.

The guidelines, which should be largely voluntary, must also be kept general and flexible and be applied to other investors, such as hedge and private equity funds, so as to ensure a level playing field, he said.

More disclosure on the purpose and intention of investments made, whether they were for commercial reasons or some other purpose, as well as the governance processes within the funds would also be helpful, he said.

For its part, GIC was now working, in consultation with the Finance Ministry, on a document which would give more information on the processes, governance and purposes for its investments. This might be made public in the second quarter of this year. GIC would also report the rate of return on its investments more regularly, he added.

'The SWFs are here to stay. We believe it is good to have better understanding, some form of code of good practice, so that operations of the SWFs, and the reactions of the recipient countries, will not lead to further problems,' Dr Tan said.

'The SWFS can play a role... It is just a matter of working out a process whereby they can continue their operations, which is good for them and good for the companies they invest in.'

He was speaking to reporters at the end of a trip to Davos, Switzerland, where he participated in several high-level discussions on SWFs - a hot topic at this year's World Economic Forum meeting, which wrapped up yesterday.

GIC had drawn attention with two high-profile deals in recent months, investing US$6.88 billion (S$9.8 billion) in US banking giant Citigroup soon after forking out 11 billion Swiss francs (S$14.3 billion) for a stake of about 9 per cent in troubled Swiss bank UBS.

Dr Tan said that given the concerns about SWFs, he had decided to come to Davos to listen and exchange ideas on the issue. It was understandable, he said, that there would be some concerns about the purpose and intentions of SWFs, as there were many more players these days, including some large new ones from Russia and China.

'Our view is that the concerns are valid, and have to be addressed,' he said.

GIC had decided not to take up an invitation by the UBS to have a nominee elected to its board. GIC's position was that it was a long-term commercial investor in the Swiss bank, with no intention of taking control of its operations, he said.

Giving an insight into GIC's operations, he said it preferred to stick with the low-key approach it had adopted over the past 27 years, taking small stakes in a wide range of companies for the long haul.

But an unusual set of circumstances in recent months had led to some American and European banks needing to raise large sums of capital quickly. As it was difficult for them to do so from their traditional sources and shareholders, they had sought out the SWFs.

GIC decided to proceed only after careful consideration of the risks, he added, stressing that GIC was not in the business of making headlines.

Nor did he see the role of GIC and other sovereign funds to be white knights 'riding to the rescue of financial systems in the US or Europe'.

Instead, GIC had a duty to the Government and people of Singapore to protect their hard-earned national reserves and make sure they were not invested recklessly, he said.

GIC had decided in the middle of last year to convert some of its equity holdings into cash, given concerns about the direction of the markets. This was how it had the US$16 billion needed to invest when the opportunity arose, he said.

'In retrospect, GIC was right in determining the direction in which the markets would go. What surprised us was the fact that when the market actually turned, it did so at such a speed and the contagion effect was so broad that it affected even some of the best-known and well-regarded banks.'

DR TAN ON SWFs

'Sovereign wealth funds are here to stay. And that's why we believe that it's good to have some form of understanding or code of practice so that the operations of the SWFs and the reactions of the recipient countries will not lead to further problems, because the SWFs can play a role. They are not going to go away. And it's just a matter of working out a process whereby they can continue their operations, which is good for them and good for the companies in which they invest.'


ON INFLATION WORRIES

'My overall worry for 2008, even more than this economic recession, is inflation. If inflation increases, then it is going to have very serious impact for the US economy and the economies of the whole world, and ultimately for Singapore. Oil prices are high, food prices are going up, we've already felt the effects in Singapore.'


ON 'DECOUPLING'

'I do not believe that if the US runs into a deep recession, the rest of the world will be unaffected.'


ON GIC'S DECISION TO CONVERT SOME EQUITY HOLDINGS INTO CASH

'In retrospect, GIC was right in determining the direction in which the markets would go. What surprised us was the fact that when the market actually turned, it did so at such a speed and the contagion effect was so broad that it affected even some of the best known and well-regarded banks.'

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