Blogs & Comment

Sovereign sound off

We have written recently in Briefcase about the Chinese governments rise in foreign capital markets with its play for a stake in Bear Stearns, and the massively successful IPO of PetroChina, which is partly controlled by Beijing. Since those items ran there has been some pushback from such organizations as the OECD and the SEC in regards to some types of foreign investments, over what they see as the darker side of global finance.
For instance, the cries against government-owned investment funds seem to be getting louder. U.S. Securities and Exchange Commission chairman Christopher Cox recently echoed the OECDs concernsover the lack of transparency of sovereign wealth funds investment vehicles owned by governments, and funded by foreign exchange assetsand state-owned enterprises. In a recent speechat the American Enterprise Institute Legal Center for the Public Interest in Washington, D.C., Cox characterized state-owned or controlled corporations in our public markets, and government-owned commercial investment funds as challenging conventional approaches to the respective roles of government and the private sector. As the worlds capital markets become ever more entwined, Cox explained he welcomed foreign investment in U.S. capital markets with open arms, but cautioned that the SEC had a number of issues, including lack of transparency, with sovereign wealth funds. In some countries, criticism of government policies lands you in jail, or worse, he said. Is it reasonable to expect that these same governments will be magically forthcoming with investors? This raises significant questions for regulators such as the SEC, whose mission includes investor protection. Indeed, when it comes to transparency, the track record to date of most sovereign wealth funds does not inspire confidence.
The OECD, which pointed out these funds have existed for decades, is nonetheless concerned about their spectacular growth, driven by large current account surpluses and increased revenues in oil producing countries, and the size of their overseas investments. Worries over the potential for these funds to be motivated by political objectives and pose security threats, are also at play here.
While increased transparency in investing is always welcome (witness the asset-backed commercial paper fiasco), at the heart of the matter it seems the subtext for these organizations is that a big bad foreigner will come in and take over, and Im not sure the best way for a government to increase global financial transparency is to bar others from investing in their country. If nations are engaged with each other, rather than isolated, there is more likelihood the same standards will be applied to all of the players. While there is a role for careful consideration of foreign investments, especially given the massive size of some of these funds, Canada must be open to outside investment. Canadians should also do their part in investing around the globe. I will keep readers updated with developments from these calls for action.