OHK’s Ahmed Hassan was interviewed in a special cover report by MEED, the Middle East Economic Digest, on rising concerns over the lack of transparency and accountability of Sovereign Wealth Funds (SWF). The article addresses the rise of cross-border asset holdings of GCC countries and poses the question of whether Gulf funds should adhere to a code of conduct, and whether failure to do so poses risks for international economic and financial structures.
Mr. Hassan explains: “Management of the Gulf’s SWF holdings should greatly concern us in today’s current financial markets’ uncertainty because of the funds’ size, vague investment policies, vague transparency and their latent capability for disrupting markets. The deals keep getting bigger and bigger and so does the associated risks of vague policies and decision making.” SWFs have roughly tripled in the last 15 years, with assets believed to be just shy of US$10 trillion, and unlike European SWFs (with Norway’s Government Pension Fund-Global [CPFG] leading the world in terms of transparency and accountability) no one knows the size of Qatar, Saudi Arabia, and the UAE’s coffers; there are no financial statements published and the decisions taken are not discussed publicly. “What’s right for Norway is not necessarily right for Qatar’s Investment Authority (QIA),” Mr. Hassan explains.
“If you apply the same yardstick to rate CPFG against the QIA fund based on a criteria of structure, governance, behavior, accountability, and transparency, you will be shocked at how poorly Middle Eastern funds perform in these aspects,” he adds. GCC funds have been around since the 1970s, when entities like the Kuwait Investment Authority became long-term, passive holders of assets in Europe with many of these investments coming under fire for poor due diligence and corruption. Yet they remained unscathed in international markets. Mr. Hassan remarks: “We are still living the financial crisis of 2008. The Gulf funds’ ever-increasing pools of petro dollars have become de facto bailout capital in times of bubbles, insolvency, and constrained credit. This will undoubtedly result in international pressure to better self-regulate; however, a transition from voluntary codes of conduct to regulatory requirements is decades away.”
Updated in 2014:
Four months after story ran, the International Monetary Fund and the International Working Group of Sovereign Wealth Funds proposed the Santiago Principles of best SWF practices, and later founded the International Forum of Sovereign Wealth Funds as a voluntary group of SWFs that have pledged to advance the Santiago Principles in their activities. In 2014, this culminated in the adoption of a three-year strategic plan focused on promoting the use of the Principles.