FT : Australia to step up scrutinity of wealth funds

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Financial Times, Tuesday February 19, 2008
Peter Smith, in Sidney with additional reporting by Henry Sender in New York.

Australia is to step up its scrutinity of investments made by sovereign wealth funds in what is believed to be the first case of a coutry taking concrete action to vet the activities of increasingly prominent investors.

The government published six principles it said were intended to "enhance transparency of Australia's foreign investment screening regime".

The country will in future consider wether "an investor's operations are independent from the relevant foreign government". In keeping with that principle, its Foreign Investment Review Board will consider whether prospective investors operate at arm's length from the government.

This couldprove challenging for many sovereign wealth funds. With the notable exception of Kuwait, most Middle Eastern sovereign funds receive allocations of money and make investments at the behest of ruling families. There is little distinction between these families' private wealth and public money.

Sovereign wealth funds, large governments investment vehicles, have been in existence for decades, but have attracted attention after a string of high profile investments in banks on both sides of the Atlantic.

In Australia, a company owned by Aluminium Corporation of China, the state-owned aluminium group, and Alcoa of the US, recently spent $14bn to buy 9% of Rio Tinto, the Anglo-Australian mining group that has rejected a hostile $147bn offer from rival BHP Billiton.

Wayne Swan, Australia's treasurer, said the rules were not aimed at China. A top Chinese official last mounth said the developed world should not discriminate against funds from developing nations or subject them to "financial protectionism".

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