RPT-INTERVIEW-More wealth fund disclosure could ease fears -IMF

(Repeats to widen distribution)

By Lesley Wroughton

WASHINGTON Nov 14 (Reuters) - Casting light on the operations of secretive government wealth funds would help stem rising protectionism and ease fears these countries could come to have undue influence over global financial markets, an International Monetary Fund official said on Wednesday.

"So far, these sovereign wealth funds have been very conservative," Adnan Mazarei, assistant director of the IMF's policy development and review department, told Reuters.

"This doesn't mean that risks of market movements or significant asset price movements because of the investments could be ruled out," he added. "Therefore, we need to get a better understanding of how they behave to make sure we understand their investment patterns, but without being intrusive."

Concerns have been growing, mainly in the West, that these funds -- with assets estimated at $2 trillion to $3 trillion and rising daily -- could at some point destabilize markets.

There is also uneasiness about their investment strategies, which are largely hidden from view, and fear that they could make investments that are politically motivated and target companies deemed vital to a nation's security.

Sovereign wealth funds are often created to invest the surplus reserves of governments that are flush with cash from natural resources, including oil and gold. These funds are owned by the government and invest in stocks, bonds, other financial instruments, or property, for example.

Some of the biggest and best-known sovereign wealth funds, or SWFs, include the Abu Dhabi Investment Authority, the Government Pension Fund of Norway, the Kuwait Investment Authority, China Investment Corp. and the Stabilization Fund of the Russian Federation.

MORE MONITORING NEEDED

In late October, the Group of Seven rich nations requested that the IMF increase its monitoring of the sovereign wealth funds and establish "best practice" guidelines to improve transparency and ensure they were run on a commercial, not political, basis.

The IMF kicked off a sovereign asset-management liability conference on Wednesday to begin to explore how the IMF should go about establishing best practices for wealth funds.

How the IMF will proceed will be determined by its executive board of member countries.

"It is very clear that some of the reaction to sovereign wealth funds emanates from globalization anxiety," said Mazarei, a point person on the project. "Part of the responsibility of the IMF is to deal with that global anxiety, either through surveillance, better information or through guidelines."

"It is in the interest, therefore, of SWFs to agree to some transparency, to allay some of those concerns," he added.

'DARK PRINCES OF GLOBALIZATION'

Mazarei said uneasiness over sovereign wealth funds was both legitimate and misplaced.

"We shouldn't rush to see them as the dark princes of globalization," he said. "But also we have to realize they bring risks with them. They require new forms of transparency and new methods of integrating them and responding to them. It is a collective responsibility."

Until now, the IMF's oversight of wealth funds has been under its economic consultations with its 185 member countries and broader global monitoring, but there is nothing compelling countries to hand over details of the investments of their sovereign funds.

The IMF's oversight is also limited when it comes to issues of national security. Some countries consider their wealth funds a matter of national security because they represent the savings plan for country's future.

"It will be difficult to ask SWFs to reveal every single asset they buy. There are legitimate concerns that some countries may have on grounds of national security, but assessment of these issues is beyond the mandate and competency of the IMF," Mazarei said.

"These 'best practice' guidelines, the content of it and suitability of it, are in the eyes of the beholder and everybody will have different things they want," he said. "But the essential guiding principle will have to be that these sovereign wealth funds are generally run on a commercial basis and transparently."

BUILDING RESERVES

Some economists applaud the development of sovereign wealth funds for letting countries enjoy better returns than they would from simply investing in U.S. debt.

But they also question whether many governments running these funds are competent enough to invest wisely.

"I understand why there is uneasiness. Therefore, it is in the interest of the sovereign wealth funds, and many of them are increasingly recognizing this, to have some sort of a voluntary guideline to eliminate some of these undue risks and uncertainties, but also at the same time, put off the protectionist pressures," Mazarei added. (Reporting by Lesley Wroughton; Editing by Jan Paschal)