ADB calls for transparency of Asia funds
Wednesday, 28 November 2007
Raphael Minder, FT Syndication Service
HONG KONG: Asian sovereign wealth funds (SWFs) should free themselves of government interference and become more transparent to counter growing western concerns over their buying clout, according to a report to be published on Tuesday from the Asian Development Bank.
In its first analysis of SWFs and the accumulation of $2,640bn (euro1,780bn, £1,280bn) in foreign exchange reserves by Asian countries excluding Japan, the ADB said: "It may be in countries' self-interest to voluntarily take steps that address legitimate fears and reduce the risk of being singled out for special treatment."
Government interference in SWFs was also likely to "erode returns'', the Asian lender warned. Even though Singapore was setting the pace in Asia, the most appropriate model for Asian SWFs was that of Norway, which had built up a massive portfolio of minority equity stakes without "barely causing a ripple anywhere in the world", said Ifzal Ali, the ADB's chief economist.
The ADB stressed: "It is sub-optimal for developing Asia to continue to invest all its reserves in safe and liquid but low-yielding assets." But Mr Ali said limited expertise and staffing meant there could be no "overnight change" towards more investment in equities.
He said: "Given that all these sovereign wealth funds are still in their infancy and do not have the internal human power to take on more risk, we expect that most of them will initially stay with fixed-income assets. Over time, they will be able to get more aggressive."
The report also argued for stricter borrowing criteria, highlighting the risks for the China Investment Corporation of holding foreign exchange assets and domestic currency liabilities, which "might prove costly if the yuan appreciates".
HONG KONG: Asian sovereign wealth funds (SWFs) should free themselves of government interference and become more transparent to counter growing western concerns over their buying clout, according to a report to be published on Tuesday from the Asian Development Bank.
In its first analysis of SWFs and the accumulation of $2,640bn (euro1,780bn, £1,280bn) in foreign exchange reserves by Asian countries excluding Japan, the ADB said: "It may be in countries' self-interest to voluntarily take steps that address legitimate fears and reduce the risk of being singled out for special treatment."
Government interference in SWFs was also likely to "erode returns'', the Asian lender warned. Even though Singapore was setting the pace in Asia, the most appropriate model for Asian SWFs was that of Norway, which had built up a massive portfolio of minority equity stakes without "barely causing a ripple anywhere in the world", said Ifzal Ali, the ADB's chief economist.
The ADB stressed: "It is sub-optimal for developing Asia to continue to invest all its reserves in safe and liquid but low-yielding assets." But Mr Ali said limited expertise and staffing meant there could be no "overnight change" towards more investment in equities.
He said: "Given that all these sovereign wealth funds are still in their infancy and do not have the internal human power to take on more risk, we expect that most of them will initially stay with fixed-income assets. Over time, they will be able to get more aggressive."
The report also argued for stricter borrowing criteria, highlighting the risks for the China Investment Corporation of holding foreign exchange assets and domestic currency liabilities, which "might prove costly if the yuan appreciates".