FT Alphaville » Gaddafi’s sovereign fund — FROZEN

No stock dividend for Colonel Gaddafi — and a stunning precedent for sovereign wealth funds — from Pearson, publishers of the FT and FT Alphaville, on Tuesday.From a statement:

Pearson plc announced on 7 June 2010 that it had received notification that the Libyan Investment Authority (LIA) had acquired 24,431,000 ordinary shares in the company. On further investigation, Pearson has reasonable cause to believe that the LIA may have acquired an additional 2,141,179 shares resulting in a total interest in 26,572,179 shares. This represents 3.27% of the company’s issued share capital.

Pearson has reviewed the United Nations Security Council Resolution 1970 (2011), and The Libya (Financial Sanctions) Order 2011 (SI 2011 No. 548) in the United Kingdom (the “Order”).

Having taken legal advice regarding its obligations under the Order, Pearson considers that the ordinary shares in the company which are held by or on behalf of the LIA are subject to the Order and are therefore effectively frozen. As a result, Pearson has today informed the LIA and its nominees that Pearson will not register any transfer or pay any dividend in respect of the shares until further notice.

Pearson had moved quickly to take legal advice after the UK froze assets controlled by the Gaddafi family at the weekend.

And it’s very interesting to see the lawyers advising that the LIA should be counted among those controlled assets — for a number of reasons. (We suspected the LIA would come under the asset freeze before the order was given, late last week.)

First — we can’t think of any previous instance of a sovereign wealth fund coming under an asset freeze. Given the increasing number of SWFs — their increasing number in many risky political regions in particular — and their increasing role as providers of liquidity to financial markets, that’s something.

Second — it doesn’t say a lot for SWF transparency that the Gaddafi family are clearly seen to be in effective control of Libya’s fund. (The situation with the LIA and its board of trustees is unique, even so; the board includes Gaddafi political appointees swept up by the country’s unrest.)

Third — Libya’s SWF has $32bn in total liquid assets. If others now follow Pearson’s lead, that’s going to cause some gyrations.

Fourth — and most important — asset-freezing is one step towards taking the LIA out of the Gaddafis’ control and returning it to making investments on behalf of Libya’s people.

Who, we’d argue, should have been its priority all along.