QATAR WILLING TO CONSIDER SOVEREIGN WEALTH FUND

C O N F I D E N T I A L SECTION 01 OF 02 DOHA 000964

SIPDIS

TREASURY FOR DAS SAEED
NEA/ARP FOR ASHLEY BAGWELL

E.O. 12958: DECL: 10/3/2007
TAGS: EFIN EINV QA
SUBJECT: QATAR WILLING TO CONSIDER SOVEREIGN WEALTH FUND
GUIDELINES


Classified By: CDA Michael A. Ratney, reasons 1.4 (b) and (d).


1. (C) Summary: In September 18 meetings at the Ministry
of Finance and Central Bank, a U.S. Treasury delegation led
by DAS Saeed told the Qatari Finance Minister and Central
Bank Governor that the USG remains committed to an open
investment climate in the United States and invited Qatar's
participation in a U.S.-proposed process, under IMF auspices,
to develop a set of best practices for sovereign wealth funds
(SWFs). The Qatari officials guardedly welcomed a
multi-lateral process to discuss an IMF-coordinated set of
best practices for SWFs, but cautioned that it may be
difficult to reach consensus due to the diversity of local
management practices. They lamented the inherent political
nature of cross-border investments and stated that Qatar
desires to keep investment decisions outside the political
realm. The Qataris also expressed concern over the lack of
regulation of hedge funds and new financial products in the
United States and elsewhere. End Summary.


2. (U) U.S. Treasury officials participating in the
September 18 meetings included Deputy Assistant Secretary
Ahmed Saeed, International Monetary Policy Office Director
Robert Kaproth, the Financial Attach for Abu Dhabi
Matthew Epstein, and International Economist Matthew
Turner. CDA, P/E Chief, and Econoff also attended.
Minister of Finance Yousef Hussain Kamal and Qatar
Investment Authority (QIA) Executive Board Member Dr.
Hussain Al-Abdulla met with the U.S. delegation at the
Finance Ministry, while Central Bank Governor Abdulla Bin
Saoud Al Thani and Central Bank Deputy Governor Fahad bin
Faisal Al Thani hosted the members at the Central Bank.


3. (C) At both meetings, Saeed highlighted the USG's
desire to cooperate with Qatar and other states to better
understand the implications of the recent growth in the
size and importance of SWFs. He underscored that the
United States remains committed to an open investment climate
and highlighted recent efforts in this regard, such as a
U.S.-led G-8 statement on investment and new legislation for
the Committee on Foreign Investment in the United States
(CFIUS).

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Proposal for Sovereign Wealth Fund Best Practices
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4. (C) Kaproth outlined for the Qataris key points made by
Treasury's Acting Undersecretary for International Affairs
Clay Lowery in a recent speech on SWFs, affirming that the
United States remains open to investment but that the rapid
increase in the number and size of SWFs represents a
structural shift underscoring the need to think through the
implications of these funds' investment practices.
Concerns arise because the funds are not transparent and
the extent of leverage and derivatives are not totally
clear, explained Kaproth. In addition, there is a danger
that SWF investments could spark financial protectionism,
which Treasury is keen to prevent.


5. (C) Saeed and Kaproth outlined U/S Lowery's proposal
that countries work with the IMF on a set of best practices
for SWFs, similar to the best practices which already exist
for foreign exchange reserve management. The U.S.
delegation underscored that these best practices would be
voluntary and would not tell SWFs how to invest. They
would be useful because they would provide guidance,
increase risk management procedures, and help
demonstrate to critics that SWFs can be responsible,
constructive participants in the international financial
system.


6. (C) The Qatari officials questioned the need for strict
rules or regulations, but suggested that guidelines would be
useful ("at least SWFs would know they are there") and that
SWFs could develop them. Kamal noted for example that SWF
guidelines may be useful in raising awareness internationally
about the purposes of fund activities and in fostering
cooperation. He noted, however, that every country has its
own system of risk management, and this would still be
primarily the case even if there were a set of guidelines.
Kamal and Al-Abdulla welcomed further discussions on the
issue, particularly in the context of the October IMF
meetings in Washington.


7. (C) Al-Abdulla observed that market mechanisms create
their own rules and regulations and that Qatar does not
like government interference in its investment activities.
Kamal added that investment managers should have primacy to
ensure that deals make financial sense, citing the example
of Qatar's bid for the NASDAQ-owned portion of the London
Stock Exchange as how private transactions should work. Al-
Abdulla cautioned that it may be difficult to develop a set
of uniform best practices, as the degree of government
involvement is inherently relative, and what works best for
U.S. investment might not fit the local conditions in the
Gulf or elsewhere.


8. (C) In response, Saeed underscored the multilateral
context of the proposed guidelines and asked for Qatar's
participation in a process which he acknowledged has "both
political and financial elements." He noted that best
practices for SWFs would not prescribe how SWFs should invest
their money, or disclosure of positions that might enable the
private sector to front-run SWF investment decisions.
Kaproth added that the United States "needs to do our part
too" and is working
within the OECD on best practices for investment recipient
countries.
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Politics as Part of Doing Cross-Border Investment
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9. (C) Kamal underscored the inherent political nature of
all private transactions when they involve cross-border
investment. He said the "lesson" of Dubai Ports World was
that you "cannot separate political from economic issues in
an official context." He gave the example of developed
countries like France and Spain where the government
intervenes in private sector transactions. When Charg raised
the CFIUS process for Qatar's investment in the Golden Pass
terminal, Kamal rejoined that this was only because the
United States needs energy. He remarked that the investment
was not really in Qatar's best interest, since the return is
projected to be "less than eight percent." Kaproth responded
that the case of Dubai Ports World shows why we need tools
such as the proposed best practices to avoid other such
controversies.

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Concern Over Hedge Fund Regulation
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10. (C) All the Qatari interlocutors expressed concern over
the lack of regulation of hedge funds in the United States
and elsewhere. Al-Abdulla said that hedge funds pose a
"systemic risk" to the global financial system. In response,
Kaproth explained USG efforts to mitigate any systemic or
investor protection risks, such as the Treasury-led
President's Working Group on Financial Markets which recently
issued guidelines on hedge funds and other pools of private
capital. Kaproth also highlighted the imminent announcement
of two Working Groups to develop hedge fund best practices
for both funds and their investors.



11. (C) Central Bank Governor Al Thani noted separately that
the Central Bank is participating in a Financial Sector
Assessment Program (FSAP) assessment, which should help to
improve its statistical capabilities and its ability to
assess financial stability and formulate early warning
indicators for financial problems, concluding that "we need
better statistics to help us manage risk better." The bank
has a special unit for macroeconomics and statistics because
they realize that without good information they can't make
the right decisions. Al Thani highlighted Qatar's
cooperation with the IMF and noted that IMF staff members
come to Qatar every year to consult with the Central Bank.
Qatar, he said, also sends monthly reports on its reserves to
the IMF and has "no problem with transparency." Al Thani
will attend the October IMF meetings in Washington and an IMF
Statistics Department mission will visit Qatar in January.


12. (U) The Treasury delegation cleared this message.
RATNEY