Paul Holmes 06 Jun 2010 // 11:00PM GMT
The global downturn has spurred interest in sovereign wealth investment, but concerns over transparency could obstruct their investment strategies to sovereign wealth as a concept, the reputation of host nations and sovereign wealth funds, according to the Sovereign Brands Survey 2010, conducted by Hill & Knowlton and Penn Schoen Berland among elites in seven markets.
The survey suggests that the economic recovery has spurred interest in sovereign wealth funds, with 51 percent of elites questioned saying they are more favorable towards this type of investment since the global downturn, compared to 14 percent who are less favorable, and 36 percent whose views haven’t changed. Brazil (80 percent), India (63 percent) and China (78 percent) are more favorable than the U.K. (39 percent), U.S. (29 percent), Egypt (38 percent) and Germany (28 percent), and their interest is likely to accelerate as the global economic outlook improves.
However, Brazil, India and China are also the most cautious about SWFs investing in their countries with India (60 percent) and China (97 percent) expressing this view most strongly.
Concerns over transparency may be fuelling mistrust that SWF investment could be used to exert political influence and acquire strategic assets. Despite the voluntary Santiago Principles introduced by the IMF in September 2008, poor adoption by the funds may be deterring consideration of this asset class amongst the elites interviewed.
SWFs from Russia (87 percent), China (84 percent) and Libya (74 percent) were considered most likely to be motivated by political objectives, and Botswana (55 percent), Singapore (50 percent) and Norway (43 percent) least likely.
All elites were averse to SWFs investing in their defense sectors (45 percent approval overall), this view felt most strongly by elites in the U.K. and Germany, where only 30 percent and 21 percent would approve respectively. Some were keener for SWF investment into their finance sectors: Brazil (84 percent), India (73 percent), China (78 percent) and Egypt (95 percent) - than the other counties surveyed. Overall, investment into the technology (86 percent), construction (81 percent) and energy (79 percent) sectors was most welcomed.
A country’s reputation is a strong driver of the perception of its SWF (98 percent of all elites interviewed believing this to be somewhat or very important), and appears to affect perceptions about that fund including its governance, transparency of financial records, performance over the last two years, and whether the SWF invests in a responsible manner, now and in the future.
SWFs from Norway, Singapore and Hong Kong scored highest across all these categories, and Libya, Algeria, Botswana and Nigeria the lowest. Unsurprisingly, these rankings also translated into the country of origin which elites would most welcome SWF investment from.
Says Andrew Laurence, chairman of the worldwide corporate practice committee at Hill & Knowlton: “Sovereign wealth funds have become global players and need to play by the global rules of transparency and communication, if they are to compete effectively for prime assets and investment positions. In some cases they may also want to work with their host governments on improving their country’s image.”
When asked which factors were most important in deciding whether they would approve of a sovereign wealth fund investing in their country, overall elites ranked transparency (72 percent), accountability (68 percent) and good governance (65 percent) as key considerations. The SWF’s performance (56 percent), social responsibility of the fund (55 percent) and motivation (53 percent) were considered less important overall.