Paulson to the Soveriegn Rescue

Treasury Secretary Henry Paulson is taking his pro-investor message on the road to the Middle East.

On Monday he told participants in the U.S.-U.A.E. Business Council in Abu Dhabi that the U.S. is "open" to investments from sovereign wealth funds, the investment arms of governments mostly located in Asia or the Middle East.

"As we seek to open new markets abroad, America will keep our markets open at home to investment from private firms and from sovereign wealth funds," Paulson said. "We reject measures that would isolate us from the world economy."

Paulson's remarks come as some lawmakers in Washington raise concerns about possible political motivations of sovereign fund investment in the U.S. A small group of lawmakers in Washington, including Rep. Frank Wolf, R-Va., question whether sovereign funds, which recently made major investments in U.S. investment banks, could use those stakes as leverage for political goals down the road.

One key sovereign fund is based in Abu Dhabi, where Paulson made his speech. The Abu Dhabi Investment Authority reported a $7.5 billion investment in Citigroup Inc. in November. According to Paulson, that fund has taken a "constructive role on this important issue."

Paulson did temper his pro-investment comments by referring to an effort underway by the International Monetary Fund to develop a set of best practices for these funds. The IMF plans to make these recommendations, which are expected to require increased transparency and disclosure of decision-making plans and investment positions, by this fall.

"We are trying to quell calls for restrictions by urging sovereign wealth funds to endorse best practices to create a dynamic rise to the top and help allay concerns about opacity and systemic risks," Paulson said.

That may not ally fears of some lawmakers, who argue that codes of conduct and transparency will not discourage sovereign funds from making politically motivated investment decisions.

Expect more details about Washington's point of view on sovereign funds when Reps. Jim Moran, D-Va., and Tom Davis, R-Va., speak about the "Implications of Sovereign Wealth Funds for American Interests and U.S. Policies," at a National Council on U.S.-Arab Relations event on June 5. The two lawmakers, who are members of a House task force on sovereign funds, have just returned from a visit to meet sovereign fund managers and government officials in Abu Dhabi, Cairo, Dubai and Saudi Arabia, as part of an internal investigation. - Ron Orol