EU says wealth funds welcome but must be more open

In this file photo EU Internal Market Commissioner Charles McCreevy speaks at a news conference in Beijing May 16, 2006. State-owned sovereign wealth funds armed with billions of dollars are welcome to invest in the European Union but should be more open about their motives and methods, the bloc's executive arm said on Wednesday.

BRUSSELS (Reuters) - State-owned sovereign wealth funds armed with billions of dollars are welcome to invest in the European Union but should be more open about their motives and methods, the bloc's executive arm said on Wednesday.

Some 30 countries have set up funds to invest about $2.5 trillion (1.25 trillion pounds) built on commodity and energy exports, which on some estimates could grow to $12 trillion by 2015.

But EU states such as Germany and France worry funds from Russia, China and elsewhere may invest in Europe to influence strategic companies like utilities rather than for purely commercial reasons.

This worry is compounded by difficulties EU firms can face in investing in countries like Russia and China.

"Sovereign wealth fund countries must acknowledge that their growing weight in global financial markets brings responsibilities," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told a news conference.

The European Commission put forward principles it wants included in a voluntary global code of conduct for SWFs being drawn up by the International Monetary Fund by October.

Internal Market Commissioner Charlie McCreevy told the news conference that the funds had been "positive and long-term investors."

"There is no, as far as I am aware, no instance of sovereign wealth funds acting in any manner other than responsibly up until now," McCreevy said. "Some people are afraid of what might happen in the future."

Britain's finance ministry said the United Kingdom had a long history of attracting commercial investment from around the world and welcomed support for its principles of open trade.

KEY PRINCIPLES

Brussels also wants a common approach to avoid unilateral action by member states that could distort the bloc's internal market.

The executive said a code should contain key principles:

-- a clear allocation and separation of responsibilities

-- the fund must operate autonomously and define its investment policy

-- the fund must disclose annually its holdings and asset allocation

-- it must state the size and source of resources

-- it must disclose any use of leverage and currency composition.

Many SWFs say they will abide by a code but the Commission has warned that unless a code works, it reserves the right to restrict direct investments through legislation.

"There is always the reserve of action but I think that would have to be effectively taken on a global level rather than at European Union level. Any other way would lead to very negative counteractions by other people," McCreevy said.

Almunia said he expected EU leaders to endorse the Commission's guidelines when they met next month.

Separately, U.S. Deputy Treasury Secretary Robert Kimmitt said sovereign wealth funds were a positive development for both the U.S. and global economy, but multilateral action was needed to monitor their activities.

Federal Reserve Chairman Ben Bernanke told Congress that SWF investments in U.S. assets were constructive and he encouraged banks to use them for additional capitalisation.

Big banks like UBS of Switzerland and U.S. peers Citigroup and Merrill Lynch have turned to the funds to top up on capital after big subprime-linked writedowns.

(Editing by Dale Hudson and Quentin Webb)