French state bank urges caution on wealth funds

Date: Friday, August 29, 2008
Author: Reuters.com

PALAISEAU, France (Reuters) - Countries including France need to be pragmatic and open their arms to sovereign wealth funds but must tread cautiously to weed out the good from the bad, the chief executive of state bank Caisse des Depots said on Wednesday.

CDC chief Augustin Romanet struck a strong note of caution, saying more needed to be done to understand the strategies of such funds. CDC is often used by the government to protect French groups from hostile overseas predators.

"Because things threaten to develop beyond our reach, let's get organised to take matters in our own hands," he told an annual conference organised by French employer organisation Medef, the country's top business lobby.

France needed to attract such funds given the long-term financing needs of domestic companies but also needed to become more familiar with their intentions which were sometimes driven by strategic considerations, he said.

"Western nations need to know to be able to keep what is good but to fight against what is bad," he said.

Romanet's comments underscore widespread fears in Europe over the power wielded by sovereign wealth funds, many of which are based in major oil-producing countries and in key Asian exporters such as China.

They also suggested greater caution than that reflected in a report prepared for the French Economy Ministry which was published in May.

That report highlighted the benefits which sovereign wealth funds could bring to economies and said France was keen to attract such investors.

Still, the report stressed the need for reciprocity, saying that states where such funds were based needed to be open to French investment in return.

Turning to the question of whether France had the ambition and resources to create its own sovereign wealth fund and whether the CDC, which manages retirement savings funds, could become such a fund, Romanet played down such a possibility.

The criteria defining sovereign wealth funds, including the practice of investing abroad, were not applicable to the CDC.

Media reports speculating on the possibility of France creating such a fund out of the CDC have circulated but many observers have been sceptical of such an idea, especially given France's limited financial resources.