Democrats Want Tougher Reviews of Investments by Sovereign Wealth Funds
Barlas, Stephen, Strategic Finance
At a time when corporations have to pay higher interest rates on corporate bonds in order to attract investors, sovereign wealth funds have in some instances been just what the doctor ordered. Ethiopis Tafara, director of the office of international affairs at the Securities & Exchange Commission (SEC), told a House Financial Services subcommittee in March, "Through their competition for investments in the United States, sovereign wealth funds can help offer U.S. companies a lower cost of capital and a more liquid market for their securities than might otherwise be available." But the fact that sovereign wealth funds may be extending a life-line to some U.S. companies these days hasn't quieted concern in Congress about the potential for some of those foreign funds--particularly those controlled by foreign governments, which most are--to use their investments in U.S. companies for questionable political purposes. Funds backed by China, Saudi Arabia, and other oil-rich Arab nations fit into that category. A second concern about sovereign wealth funds stems from the fact that sovereign wealth funds have some of the same opaque characteristics as hedge funds, according to Linda Chatman Thomsen, director of the division of enforcement at the SEC. She explains, "There is the potential for these powerful market participants to obtain material nonpublic information, either by virtue of their financial and governmental powers or by use of those powers, to engage in illegal insider trading using that information."
Both those concerns explain why top congressional Democrats want Secretary of the Treasury Henry Paulson to make it clear that the Committee on Foreign Investment in the United States (CFIUS) can and will review potential investments in U.S. companies by sovereign wealth funds where that investment accounts for less than 10% of the U.S. company's value. CFIUS is the committee composed of U.S. federal agencies that reviews proposed sales of or investments in U.S. companies to foreign buyers. …