The tensions between American politicians and sovereign wealth funds over investments in the US, which have been muted of late, could easily reignite.
Charles Schumer, the New York senator, has welcomed investments by SWFs in New York-based banks such as Citigroup. But at a hearing on Capitol Hill yesterday, he sounded a more defensive note, saying he was disappointed in the SWFs’ failure to come to Washington to explain themselves:
Sovereign wealth funds are their own worst enemies. Most are not transparent or publicly accountable, and we know little about their governance structures or fiduciary controls. So the bottom line is that we don’t know if their decisions are made exclusively on an economic basis.
We invited some of the largest sovereign wealth funds to testify before us today, but they directly declined or their government embassies in the US declined for them.
My general view of SWFs is that they are helping the US economy by re-capitalising banks and that past incidents of proto-protectionism, such as the fuss over DP World’s acquisition of P&O, reflect badly on politicians. I think that fears about SWFs are often overblown.
But Senator Schumer has a point here. The refusal of SWFs to talk directly and publicly about what they are doing does not help their case that they are responsible minority investors which are not seeking to exercise any malign influence over US businesses.
In Davos last month, US Treasury officials met various SWFs to try to persuade them to open up a bit and accept new guidelines on transparency. In response, the mood of various funds seemed to be that they had done nothing wrong and saw no need to explain themselves.
The reality is, however, that unless they do better to reassure their critics, they could encounter a further political backlash. That would not be in their own best interests.
