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A Trade Group for Wealth Funds

Just as the controversial $3 trillion business of sovereign wealth funds is attracting more attention on Capitol Hill, a small group of mostly Republican lobbyists has quietly launched a new trade association to represent these far-flung investors in Washington, D.C.

The Sovereign Investment Council, which incorporated in the past few weeks, is reaching out to potential members with wealth funds, like Abu Dhabi, Norway and Singapore, and to U.S. financial services companies that do business with them.

Industry lobbyists say the timing is crucial. Money in the funds, which are used as investment tools by foreign governments, has ballooned in the past five years. The Abu Dhabi Investment Authority controls the largest fund, with an estimated $875 billion in assets, and in November bought a $7.5 billion stake in Citigroup while the China Investment Corp. has made significant investments in Morgan Stanley and The Blackstone Group.

Hearings on the wealth funds are planned in both the House and Senate. The funds also are facing worldwide regulatory challenges — from Australia to the European Union, and even California.

Two House Financial Services subcommittees plan a joint hearing, “Foreign Government Investment in the U.S. Economy and Financial Sector,” on March 5, according to a committee spokeswoman. Senate Banking, Housing and Urban Affairs Chairman Chris Dodd (D-Conn.) also plans hearings but has not announced a date. Dodd and the committee’s ranking member, Richard Shelby (R-Ala.), sent a Dear Colleague earlier this month to let Senators know that the committee plans to “consider appropriate legislative authority under our jurisdiction to ensure the strength and security of America’s economy.”

Jeffery Walter, a former aide to then-Sen. Al D’Amato (R-N.Y.) and founder of the Walter Group, called the new Sovereign Investment Council “a brainchild of mine” that he came up with about six months ago. He discussed the idea with a friend, Thomas Karol, whose bio lists him as a former chief operating officer of global financial services at Deloitte Touche Tohmatsu. Karol has become president of the new council, which is a 501(c)(6) organization.

The group’s other employees include an Alabama financial services lobbyist and Shelby supporter Palmer Hamilton and Jim McCray, a former finance aide to then-Sen. Conrad Burns (R-Mont.).

The newly minted group also has reached out to lobbyists from Clark Lytle & Geduldig for help with meetings on Capitol Hill and the Bush administration.

“We’re hoping to make our point with the members and staff of the committees of jurisdiction,” said lobbyist Sam Geduldig.

“There are trade associations for just about everyone in town, but none that represents sovereign investment,” added Geduldig, who worked on Committee on Foreign Investment in the United States legislation for Rep. Roy Blunt (R-Mo.) when he was an aide in that office. “It’s a very needed organization at a time when these transactions are under more and more scrutiny.”

One in-house banking industry lobbyist, who would not be quoted by name, said that whether or not this new group is the one to do it, the industry needs a trade association.

“They could’ve used one yesterday,” this lobbyist said. “It’s that bad. You’ve got sovereign wealth funds who intend to increase their investments in the U.S., and Members of Congress who are increasingly interested in issues surrounding them.”

According to several sources in the banking community, the group has solicited members for dues ranging from $100,000 to $1 million. Karol, however, declined to discuss dues or the group’s budget. “We’re still working that out,” he said.

Dues aside, it might be a hard sell with some of the countries with wealth funds.

Lars Hansson, counselor for economy and finance at Norway’s embassy, said the new group reached out to him, but that Norway is not considering joining. “Our reaction was quite skeptical,” Hansson said, declining to elaborate.

But lobbyists who track sovereign wealth investments said the funds are so diverse and various countries have such vastly different disclosure policies — with some far more transparent than others — that it might be difficult to get all the funds to agree on policy matters.

The funds, though, seem to have no shortage of cash. Collectively, the global funds’ assets are widely expected to grow to nearly $12 trillion by 2012.

“They do have divergent interests, but they have one common interest: They want to continue to invest in the best market in the world,” Walter said.

Karol, who also runs a group called The Center for Investors’ Confidence, added that while the Sovereign Investment Council’s staff may now be tilted toward Republicans, it plans to be bipartisan and staff up when members join.

Governments start these wealth funds, Karol said, when they have a surplus of cash that they want to grow. Some countries closely guard their investments, while others disclose their holdings.

“The reason we’ve established the council [is] the public face of these entities has been very, very negative,” Karol said. “They’re big, they’re foreign, some are less transparent than some people would like. Nobody’s speaking up for them. They are legitimate operations. It’s not as mysterious as everybody thinks.”

Some policymakers have suggested that new curbs be placed on what foreign wealth funds can invest in in the United States. The Dodd-Shelby Dear Colleague letter notes that some worry the funds are motivated less by getting the biggest return on their investment and more about using their money as leverage to strengthen their own domestic industries or as political tools.

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