(March 21, 2008) – Transparency is a good thing. Arabianbusiness.com reported today that Abu Dhabi signs landmark US sovereign fund accord.
In very much a quid pro quo agreement the US receives assurances that foreign governments will not use their funds for political ends, while countries receiving investment from such funds accept any protectionist barriers to foreign direct investment should be dismantled.
There is also an acknowledgment that funds should disclose more information, particularly financial information, while recipient countries should also have predictable investment frameworks and should not discriminate among investors.
This issue comes up all the time on TV. How should we think about sovereign funds? Well, for one thing they are very big. (When the elephant gets in the bathtub we all get wet.) Also, they have very long investment horizons–considerably longer than pension funds. In recent months I have had the opportunity to visit with the people that manage 5 of the big sovereign funds. In general, they are financial professionals consumed with the same sorts or risk, return worries that we all think about. They have a very difficult investment problem to solve. We need to take the time to get acquainted; we will be dealing with them for a long time.