Wealth funds adopt draft guidelines for investment

By Simon Gardner and Lesley Wroughton

SANTIAGO/WASHINGTON (Reuters) - Global sovereign wealth funds said on Tuesday they had reached a preliminary agreement on a set of voluntary principles to guide their investment practices and to calm fears about their motives.

The International Working Group of Sovereign Wealth Funds, or IWG, which consists of 26 of the wealthy state-owned funds, said it would present the guidelines to the International Monetary Fund's policy-setting committee on October 11.

The guidelines are expected to be published after the October meeting, giving governments with sovereign wealth funds (SWFs) time to consider them first.

"The IWG has reached a preliminary agreement on a set of voluntary generally accepted principles and practices," the group said in a statement after a two-day meeting in Chile's capital, Santiago.

"These principles and practices will promote a clearer understanding of the institutional framework, governance, and investment operations of SWFs, thereby fostering trust and confidence in the international financial system," the group said.

The group was co-chaired by Hamad al Suwaidi, undersecretary of the Abu Dhabi finance department and a director of the Abu Dhabi Investment Authority, and Jaime Caruana, director of the IMF's monetary and capital markets division.

Sovereign funds have existed since the 1950s, but as large Asian exporting countries and oil-producing nations have seen their currency reserves balloon, these funds have mushroomed in size and number. Today the funds are believed to control assets worth between $2 trillion and $3 trillion.

Some countries where the funds invest, like the United States, are worried that funds seen controlling $10 trillion in assets between them by 2012 could be a destabilizing factor in international markets with their large-scale investments.