Identifier
Created
Classification
Origin
08BANDARSERIBEGAWAN98
2008-03-21 07:56:00
CONFIDENTIAL
Embassy Bandar Seri Begawan
Cable title:  

BIA MANAGING DIRECTOR PROPOSES DIFFERENTIATED SWF

Tags:  EFIN ECON PGOV BX 
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C O N F I D E N T I A L SECTION 01 OF 03 BANDAR SERI BEGAWAN 000098 

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SIPDIS

E.O. 12958: DECL: 03/19/2018
TAGS: EFIN ECON PGOV BX
SUBJECT: BIA MANAGING DIRECTOR PROPOSES DIFFERENTIATED SWF
TRANSPARENCY REQUIREMENTS

REF: 07 BANDAR SERI BEGAWAN 229 (NOTAL)

Classified By: AMBASSADOR EMIL SKODON, REASONS 1.4 (B,D)

-------
SUMMARY
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C O N F I D E N T I A L SECTION 01 OF 03 BANDAR SERI BEGAWAN 000098

SIPDIS

SIPDIS

E.O. 12958: DECL: 03/19/2018
TAGS: EFIN ECON PGOV BX
SUBJECT: BIA MANAGING DIRECTOR PROPOSES DIFFERENTIATED SWF
TRANSPARENCY REQUIREMENTS

REF: 07 BANDAR SERI BEGAWAN 229 (NOTAL)

Classified By: AMBASSADOR EMIL SKODON, REASONS 1.4 (B,D)

--------------
SUMMARY
--------------


1. (C) Brunei Investment Agency Managing Director Dr. Mohamed
Amin Liew told Ambassador that BIA intended to continue a
conservative international strategy that emphasizes fixed
income assets and passive portfolio investments. It would
avoid country-specific funds as well as direct equity stakes
in areas other than commercial real estate and hotels, where
it already had some interests. Dr. Amin said BIA wanted to
be a "law abiding citizen" and was open to an IMF Sovereign
Wealth Fund (SWF) Voluntary Code of Conduct, but opposed
extensive transparency targets that would require it to make
public its investment strategies. He proposed a sliding
scale of transparency guidelines based on the potential
threat that individual SWF's posed to the smooth functioning
of global markets, as determined by: the capability for
disruption that their preferred types of investments gave to
them; the impact they could have with the amount of capital
they controlled; and, the extent to which their track record
of commercially-driven investment decisions established their
intent to act responsibly. Dr. Amin was relatively positive
about the U.S. economy, which he described as "big, diverse,
and nimble." He expected oil prices eventually to settle
into an inflation-adjusted range of USDOLS 60-70 per barrel.
End Summary.


2. (SBU) Ambassador hosted Brunei Investment Agency (BIA)
Managing Director Dr. Haji Mohamed Amin Liew bin Abdullah at
a one-on-one lunch on March 13. Earlier this year the
secretive and publicity-shy BIA was estimated to be the

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world's twelfth largest Sovereign Wealth Fund (SWF) by the
Economist magazine, with assets of approximately USDOLS 30
billion.

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BIA'S CONSERVATIVE STRATEGY
--------------


3. (C) Dr. Amin noted that the BIA had been following a very
conservative international investment strategy, focused on

fixed income assets and passive portfolio investments in
equities. In recent years it had moved some money into hedge
funds, private equity funds, and commodity indices. Its only
direct equity investments outside of Brunei were in
commercial real estate and hotels. (BIA is also the
reluctant owner of a hotel, theme park, golf courses, and
other domestic businesses within Brunei, which it inherited
from the now-defunct Amadeo Investment Company that was
managed by the Sultan's brother Prince Jefri and collapsed in
the late 1990's.)


4. (C) The Managing Director reiterated previous BIA
assertions that it had little interest in expanding direct
equity investments (reftel). Dr. Amin said BIA continued to
adhere to an internal guideline that its combined direct and
indirect portfolio investments in any one company should not
exceed five percent of total equity. He contrasted BIA's
strategy with that of the Abu Dhabi Investment Authority,
which he described as oriented exclusively toward direct
investment, and the Qatar Investment Authority, which he
characterized as "very aggressive."


5. (C) Dr. Amin said that BIA avoided country-specific funds
because it did not feel comfortable placing large bets on
single markets. The typical country-specific private equity
fund asked for an 8-10 year commitment of capital. A lot
could happen in that span of time, and with only about 60

BANDAR SER 00000098 002 OF 003


analysts among its 200-odd employees the BIA did not have the
capacity to analyze the mid-term investment prospects in
individual countries. As a result, the BIA preferred to
invest in funds with a global orientation and leave it to the
managers of those funds to determine how best to diversify
their investments across country markets.

--------------
SWF TRANSPARENCY: A DIFFERENTIATED APPROACH?
--------------


6. (C) Ambassador reviewed USG policy on SWF's and asked Dr.
Amin for his views on the proposed IMF Voluntary Code of
Conduct for SWF's. Dr. Amin said he could not comment in
detail because the IMF had not yet been in contact with the
BIA to discuss what type of guidelines it had in mind.
Generally, though, he maintained that the BIA wanted to be "a
law-abiding citizen" but did not want to provide detailed
public declarations about its investment strategies. If it
revealed the asset classes in which it was most interested,
the effect on market expectations would result in BIA having
to pay higher prices for those assets, and cause it to be
deluged with offers from brokers and fund managers
specializing in those areas -- neither of which would be
welcome developments from BIA's point of view.


7. (C) Dr. Amin floated the idea of a Voluntary Code of
Conduct that incorporated a range of transparency
requirements on a sliding scale that was dependent on the
potential threat that an SWF posed to global markets. He
understood the nervousness about newer SWF's that controlled
a large pool of capital, focused on direct equity
investments, and were controlled by governments that might be
tempted to make noncommercial investment decisions for
political reasons. Such SWF's posed a larger potential
threat because their type of investment activity had the
capability to disrupt financial markets, they had enough
assets to make a significant impact on those markets, and
they had not yet clarified their strategic intentions. SWF's
in this category, he believed, could legitimately be asked to
meet relatively stringent transparency requirements
proportional to the threat they posed.


8. (C) On the other hand, Dr. Amin argued, other SWF's
exhibited characteristics that made them less of a threat. A
preference for fixed income and passive portfolio investments
translated into less capability for market disruption. Those
SWF's that controlled relatively smaller pools of capital
could not have as great an impact on global markets. And, a
track record of avoiding direct equity investments and making
investment decisions solely on economic grounds indicated the
lack of any intent to cause mischief. Given the lower threat
that such SWF's posed, and pointing out that this low-threat
profile described BIA precisely, Dr. Amin maintained that BIA
and similar SWF's should only be asked to adhere to a less
stringent set of transparency requirements.

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BIA NOT BEARISH ON THE U.S.
--------------


9. (C) Dr. Amin was not overly pessimistic about the U.S.
economy. He observed that tax rebates had spurred consumer
spending and economic recovery in 2002 and could play the
same role today, even though some of this extra buying power
would go to pay for higher-priced imported energy and so do
little to stimulate the domestic economy. Dr. Amin also
expected that eventually the Federal Reserve would bring the
Federal Funds Rate down to 2 percent. (Comment: This
conversation took place before the JP Morgan buyout of Bear
Stearns and the 18 March cut in the Fed Funds Rate to 2.25
percent. End Comment.) He said that the most important
factors in his mind were that the U.S. economy remained "big,

BANDAR SER 00000098 003 OF 003


diverse, and nimble," traits that would allow it to avoid a
persistent economic malaise such as that which Japan had
suffered in the 1990's. Overall, Dr. Amin expected the U.S.
economy to slow down throughout the first half of 2008, and
said "we would just have to wait and see" what happened
thereafter.


10. (C) Noting that he had started his career as an oil
trader for Brunei Shell Petroleum, Dr. Amin said he hoped and
believed that crude oil prices would eventually settle back
to an inflation-adjusted level of USDOLS 60 to 70 per barrel.
He thought such a price range would be optimal for both
hydrocarbon producers and consumers, as it would be high
enough to encourage continued exploration but low enough not
to support extensive development of high-cost alternative
energy sources.

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COMMENT
--------------


11. (C) The BIA Managing Director's call for an SWF
Voluntary Code of Conduct that incorporates a sliding scale
of transparency requirements based on potential threat levels
is obviously self-serving. It is difficult to foresee SWF's
from China or the Gulf going along with a differentiated set
of requirements that would confer a perceived competitive
advantage of lower transparency on competing investors like
BIA. Dr. Amin, however, appeared quite intent on the idea,
and we can expect it to be raised in any discussion that the
BIA has with the IMF on the terms of a voluntary SWF Code of
Conduct. END COMMENT.
SKODON