SEC looking at sovereign wealth funds

Chairman questions funds' motives during Senate hearing
By Robert Schroeder, MarketWatch
Last Update: 11:49 AM ET Jul 31, 2007
WASHINGTON (MarketWatch) -- Securities regulators are "grappling with" the rising prominence of sovereign wealth funds, the chairman of the Securities and Exchange Commission told a Senate panel Tuesday as he questioned the motives of funds' investment decisions.
SEC Chairman Christopher Cox told a Senate Banking Committee hearing that these funds, which are government investment vehicles funded by foreign-exchange assets, pose challenges to the U.S. regulatory system.
Sovereign wealth funds are "significantly less transparent" than hedge funds, Cox noted.
The SEC chief said the growing governmental and potentially political influence over capital market flows that the sovereign wealth funds portend "presents challenges to a regulatory system premised on free markets, the free flow of information and investor incentives based on profit and loss."
During a question-and-answer session with senators, Cox said motives for investment decisions may "go beyond profit and loss."
The value of the funds could reach $12 trillion by 2015, up from $2.5 trillion now and dwarfing hedge funds' value.
The foreign-exchange assets in such funds are managed separately from the official reserves of a country's monetary authorities, Cox said.

Robert Schroeder is a reporter for MarketWatch in Washington.