Asian pensions caught up in sovereign fund debate
GIC, others believe time is short to reach accommodation with western governments over sovereign wealth funds.
Teh Kok-Peng, president of GIC Special Investments, a unit of SingaporeÆs Government Investment Corporation, says western governments should judge so-called sovereign wealth funds by their internal processes rather than by their state ownership.
Speaking at the annual Asian meeting of the Pacific Pensions Institute in Singapore, Teh warned an over-politicised reaction in the United States and Europe to state-owned investment agencies in Asia would have negative consequences for all.
His remarks, made to an audience full of North American and some European public pension funds, included a veiled warning that if western politicians block sovereign wealth funds from participating in their markets, they might find it difficult to invest in Asia.
Similarly, Robert Hormats, vice chairman of Goldman Sachs, called on Asian public pension funds to be more proactive on shaping this issue because they are at risk of being tainted with the same brush by xenophobic politicians in the United States.
The concept of what is a sovereign wealth fund raised controversy. In a lighter moment, Teh noted the GIC has been around since 1981. ôIÆve only learned this year that I work for a sovereign wealth fund,ö he said.
Hormats observed the west is in the midst of a confusing debate about the role of sovereign wealth funds. He called for public funds to encourage a rational debate to set guidelines in areas such as transparency now, before the issue has a chance to be picked up in next yearÆs US presidential election.
He noted the common interest among sovereign wealth funds keen to invest and the need for the US and other developed markets for investment capital. ôThese funds can be enormously beneficial to the world economic system,ö he said.
One member of the audience, a US citizen with long experience with Asian pension funds, condemned western governments for assuming state-owned funds from Asia and other regions are ôguilty until proved innocent. That is damned arrogance.ö
The definition of a sovereign wealth fund came up for debate. GICÆs Teh noted that some of the US pension funds in the room could count, as they are funds running money on behalf of a state. ôOr does this definition exclude pension funds?ö he wondered.
Hormats noted that several funds that now fall under the rubric of æsovereign wealthÆ have been around for decades and never generated controversy, including funds in Singapore, Kuwait and the United Arab Emirates. He suggested that western governments must differentiate between those that can show their investment decisions follow fiduciary responsibilities versus those that cannot.
Some people are sceptical about the ability for some funds to separate themselves from the politics of their government. One member of the audience representing a US public pension plan said his fund canÆt be considered a sovereign wealth fund because it invests through third-party fund managers, rather than taking direct strategic stakes in foreign companies.
But other US and European public funds do take such stakes, and as another US public fund executive noted, even US state public funds can be opaque and manipulated by local politicians for their own ends.
Hormats concluded there is no such thing as a pure public fund. Rather they come in shades of grey, but he believes those that would use their investments as a tool to pressure western governments would be obvious and shut out, particularly if a code is achieved to shed light on how funds make asset allocation decisions, for example, or to define their liability requirements. He cited the GIC as having set high standards in this regard.
Teh said the GIC only invests to achieve inflation-beating returns.
Lee Kwan-Yew, now SingaporeÆs æminister mentorÆ, remains GICÆs chairman, a role he has held since the groupÆs inception. The GIC will not disclose the size of its assets other than to note it is in excess of $100 billion. In the past two years it has revealed some basic internal structures to the media.
Speaking at the annual Asian meeting of the Pacific Pensions Institute in Singapore, Teh warned an over-politicised reaction in the United States and Europe to state-owned investment agencies in Asia would have negative consequences for all.
His remarks, made to an audience full of North American and some European public pension funds, included a veiled warning that if western politicians block sovereign wealth funds from participating in their markets, they might find it difficult to invest in Asia.
Similarly, Robert Hormats, vice chairman of Goldman Sachs, called on Asian public pension funds to be more proactive on shaping this issue because they are at risk of being tainted with the same brush by xenophobic politicians in the United States.
The concept of what is a sovereign wealth fund raised controversy. In a lighter moment, Teh noted the GIC has been around since 1981. ôIÆve only learned this year that I work for a sovereign wealth fund,ö he said.
Hormats observed the west is in the midst of a confusing debate about the role of sovereign wealth funds. He called for public funds to encourage a rational debate to set guidelines in areas such as transparency now, before the issue has a chance to be picked up in next yearÆs US presidential election.
He noted the common interest among sovereign wealth funds keen to invest and the need for the US and other developed markets for investment capital. ôThese funds can be enormously beneficial to the world economic system,ö he said.
One member of the audience, a US citizen with long experience with Asian pension funds, condemned western governments for assuming state-owned funds from Asia and other regions are ôguilty until proved innocent. That is damned arrogance.ö
The definition of a sovereign wealth fund came up for debate. GICÆs Teh noted that some of the US pension funds in the room could count, as they are funds running money on behalf of a state. ôOr does this definition exclude pension funds?ö he wondered.
Hormats noted that several funds that now fall under the rubric of æsovereign wealthÆ have been around for decades and never generated controversy, including funds in Singapore, Kuwait and the United Arab Emirates. He suggested that western governments must differentiate between those that can show their investment decisions follow fiduciary responsibilities versus those that cannot.
Some people are sceptical about the ability for some funds to separate themselves from the politics of their government. One member of the audience representing a US public pension plan said his fund canÆt be considered a sovereign wealth fund because it invests through third-party fund managers, rather than taking direct strategic stakes in foreign companies.
But other US and European public funds do take such stakes, and as another US public fund executive noted, even US state public funds can be opaque and manipulated by local politicians for their own ends.
Hormats concluded there is no such thing as a pure public fund. Rather they come in shades of grey, but he believes those that would use their investments as a tool to pressure western governments would be obvious and shut out, particularly if a code is achieved to shed light on how funds make asset allocation decisions, for example, or to define their liability requirements. He cited the GIC as having set high standards in this regard.
Teh said the GIC only invests to achieve inflation-beating returns.
Lee Kwan-Yew, now SingaporeÆs æminister mentorÆ, remains GICÆs chairman, a role he has held since the groupÆs inception. The GIC will not disclose the size of its assets other than to note it is in excess of $100 billion. In the past two years it has revealed some basic internal structures to the media.
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