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Romanian government to create sovereign wealth funds for investment

posted onNovember 19, 2018
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Romania’s government approved the legal framework for the setting up of sovereign wealth funds for development and investment, finance minister Eugen Teodorovici announced on Thursday.

"Every sovereign wealth fund...will provide Romania with cost-effective and sustainable investments in development areas, or areas that need development and investment," the minister told a press conference at the Victoria Palace at the end of the Cabinet meeting.

The government announced its plan to set up a national Sovereign Development and Investment Fund (SDIF) in August 2017. In June this year the Parliament passed the law to establish the SDIF which included some of the most profitable state-owned companies such as energy distributor Electrica, and gas producer Romgaz.  But the Romanian Constitutional Court ruled in July that the SDIF should have been set up by a government decree rather than by a law.

On November 10 the Finance Ministry put up for public debate the framework project for the establishment of the SDIF and invoked an extraordinary situation that needed to be urgently regulated, thus requiring its immediate adoption through government decree.

According to minister Teodorovici, the development and investment sovereign wealth funds will make a decisive contribution to the development of Romania’s economy by “providing alternative sources of funding for important investments in infrastructure, industry or capital markets.” 

The legal form of organising these sovereign wealth funds is that of Romanian joint-stock companies under terms to be established separately through  another government decrees. The funds will be managed in a dualistic system, by a Management Board made up of seven members, under the oversight of a Supervisory Board made up of nine members, according to the minister.

Teodorovici added that the members of the Supervisory Board are appointed by the General Shareholders Meeting for a term of five years and must fullfill the following selection criteria:

financial-banking expertise, experience in corporate management, professional integrity, good repute, knowledge, skills and experience appropriate to the complexity of the specific activity of sovereign wealth funds. The purpose of these funds is not privatisation the Finance Minister explained.

He also gave details about the type of funding available through the newly created fund:
 
"Financing Romanian companies at various stages of development, start-ups included, financing companies of strategic importance, investing in industry and infrastructure, increasing the competitiveness of the national economy, stimulating innovation and new technologies, creating jobs in a sustainable manner, developing the human and social capital in the long run, and developing capital markets."

The government says that the funds will manage stakes in some 30 of the most profitable state-owned companies and will have an initial social capital of 9 billion lei (2.25 billion U.S. dollars). The Romanian minister has also said that these companies can be listed and sold on the Stock Exchange to the amount of 51%. 

The Fund is part of the materialisation of the Programme for Government 2017-2020. 

Traditionally, wealthy countries use Sovereign Wealth Funds (SWFs) to invest their surplus billions overseas to prevent inflation at home, diversify income streams and accumulate savings for the day when commodity revenues run out. Some countries may have more than one SWF  which invest in a variety of asset classes such as stocks, bonds, real estate, private equity and hedge funds.