Last week Global Witness--an NGO devoted to ferreting out corrupt use of natural resources in developing countries—got its hands on a management report from the Libyan Investment Authority (LIA) and released it to the press. The LIA is the fund through which the Libyan government invested its oil profits—a Sovereign Wealth Fund (SWF).
With just north of $50 billion in assets the LIA qualifies as a top-20 fund in size. For reference--the Abu Dhabi Investment Authority, the world’s largest SWF, has over $600 billion in assets. To make it into the top-10, an SWF has to be larger than $100 billion—other countries with funds in the top-10 include Norway, Singapore, Saudi Arabia and China.
The report that Global Witness released was a June 2010 summary of the LIA’s holdings and performance, detailing where the LIA’s assets were held at the time and how they were doing. In its release of the document Global Witness focused on the fact that HSBC and Goldman Sachs were two of the firms with whom the LIA had invested--$335 million, less than 1% of the fund’s total holdings, but certainly headline grabbing. And Global Witness used the occasion of the release of the report to call for new regulations requiring banks and investment funds to disclose all state funds that they manage—the idea being that doing so would help to reassure citizens—in this case Libyan citizens—that their money is not being siphoned off by corrupt leaders.
Global Witness first made a name for itself by spearheading a worldwide campaign against Africa’s so-called blood diamonds. In 2003 the organization was nominated for a Nobel Peace Prize for that work, and it continues to use an effective blend of public and private pressure to expose corruption associated with misuse and misappropriation of other natural resources—oil, timber, strategic minerals—in Cambodia, Sudan, the Democratic Republic of Congo and many other political hotspots.
They’re onto something here, focusing on SWFs as yet another pressure point tool for resource-rich countries and at the same time addressing transparency of fund allocation as a key associated issue—not only for a country’s citizens but also for its investment, trading and other strategic partners. But there are potential avenues to accomplish their objectives that may prove to be not only quicker than calling for regulation—at a time when both financial institutions and regulators are drowning in complex, new programs across the board—but also more powerful, effective and potentially complementary to some of their other political initiatives.
Having a SWF is something of a badge of honor—SWFs are a little edgy, a little mysterious. And having one requires that a country park its resource profits in one place. They can’t slither away. The mere existence of a SWF is the first basic step to communicating that a country’s assets are being set aside appropriately. Libya deserves points. Other resource-rich—and leadership lite—countries who don’t yet have SWFs should be seduced to join the club by the sexy factor. Reportedly Angola and Nigeria are close. Why not Sudan and DRC?
Once a fund is in place, Global Witness's opportunities are two-fold: first, to work with fund managers to ensure that they clearly, publicly and regularly communicate asset oversight, management, allocation and performance and second, to work with banks and asset managers--and their shareholders and investors--to urge them to refuse to accept investment monies from funds not meeting certain minimum standards of disclosure.
The Sovereign Wealth Fund Institute maintains a ranking of SWF transparency--the Linaburg-Maduell Transparency Index--updated quarterly. The two standard bearers for top-notch disclosure are the Norwegian Government Pension Fund and Singapore's Temasek Holdings. Both funds are rated 10 on the index's scale of 1 to 10. Anything less than an 8 is deemed opaque. Libya's fund is rated a 2.
In past campaigns Global Witness has proven extremely adept and savvy at mixing and matching levers to pull and incentives to apply to bring about positive change. SWFs represent another powerful point of entry for their valuable work. Tackling the change head on, rather than expecting banks and regulators to pick up the ball, is likely to garner more visibility and support for their efforts--and results. Kazakhstan, another country where Global Witness works, already has an SWF in place. It's rated a 6.
Photo: Associated Press