To regulate or not to regulate?
Pressure to regulate sovereign wealth fund (SWF) investments is escalating around the globe. SWF say they have money to invest and may choose the path of least resistance when considering which country to invest in. According to the front page of the Financial Times on Wednesday 30th April, the European Union has offended SWF investors by suggesting their funds should have to sign a voluntary code of conduct in the interest of transparency, before being allowed to invest in Europe. Head of Dubai World, a United Arab Emirates government backed operator, Sultan bin Sulayem claims it is discriminatory to require a government or fund backed by a government, to apply a code of conduct that other investors do not have to follow. The inference he makes is that this puts SWF at a disadvantage from other investors in the region, such as private equity and it could potentially discourage SWF investment in Europe.
http://www.ft.com/cms/s/0/9adae674-164e-11dd-880a-0000779fd2ac.html
In the same week, UNI affiliate SEIU has released a report on SWF and private equity which recommends tightening regulation on SWF investments in the US. The report reveals that SWF have been buying ownership stakes in private equity firms, which then conceals their direct investment in specific funds. The private equity firm uses the SWF capital to invest it where it chooses. Private equity firms are not regulated to declare investment information such as foreign ownership and authorities can not track where, how much and who is really investing. For example Abu Dhabi’s Mubadala Development Company has a 7.5% stake in private equity firm Carlyle Group. Carlyle Group has investments in companies that control petroleum pipelines into key military bases, and other investments that have major US defence contracts. US foreign ownership checks and balances are unable to track this type of investment by a SWF which, is indirectly investing through the private equity firm. It is going unnoticed by authorities. Some US Senators have openly declared their intention to protect strategic investments like these, by looking into further regulation in the interests of national security.
Across the globe in Australia, the government is currently delaying investments by China’s SWF backed funds in deals involving resources, while the parliament considers new foreign investment laws. As many as 10 investment applications have been delayed and China is beginning to feel unwelcome.
http://www.ft.com/cms/s/0/702400e6-164e-11dd-880a-0000779fd2ac.html
UNI Global Union supports regulation on SWF across the globe in the interest of working people. UNI welcomes the initiative by the Trade Union Advisory Committee to the OECD who has made submissions to the OECD suggesting the same. There is a need for transparency of governance and investment strategy, for reasons including the sheer size and scope of SWF investments and the potential influence they can have in the market place, on employment and on workers. None of the SWF have made clear their support for ILO conventions 29, 87, 98, 105,111,135, 138 and 182 on workers rights.
The Sultan bin Sulayem claims it is discriminatory to single out SWF to be regulated. He also suggests that if Europe requires SWF to sign up to a voluntary code, then funds will invest elsewhere. UNI has an answer to this problem and that is to regulate SWF, hedge funds and private equity to bring them in line with the transparency obligations of publicly listed enterprises across all markets. There can be no disadvantage or favoured region of investment, if regulation is installed equally across the globe for all investors.