Foreign Portfolio Investment (FPI):The Arbitral Tribunalsʼ and Investment Conventionsʼ Approach

Foreign portfolio investment (FPI), known as investment in equity and debt securities (not ʻderivativesʼ), that is intended only for financial gain and does not create a lasting interest in or control over an enterprise. Although the merits and demerits of FPI is highly controversial and have remained unsettled, most investment treaties have used a very broad definition of investment (eg ʻany kind of participation in companiesʼ) that includes what is referred to as FPI, therefore the reference to interests in companies typically does not require that the investor’s interest or participation in the company be a controlling one. Indeed, minority shareholdings are generally protected under international investment agreements and arbitral tribunals have supported this approach. As far as the ICSID arbitration is concerned, there is a growing consensus that the characteristics of investment notion are contribution of capital, duration and risk (known as ʻinherent common meaningʼ of the term investment) and FPI could be qualified as an investment under article 25(1) of ICSID Convention (even if it was not FDI). The recent arbitral awards (Abaclat v Argentina; Ambiente Ufficio v Argentine; Giovanni v Argentine; Poštová banka v Hellenic) give rise to an increasing concern of international law about the protection of foreign investment in the form of securities instruments (especially sovereign bonds), also referred to as financial instruments. The main conclusion to be drawn from this article is that (I) FPI should be excluded from bilateral and multilateral investment treaties by restricting the asset-based approach to direct investment only; (II) Clear benchmarks as to what is an ʻinvestmentʼ must be developed by including objective criteria for the definition of an ʻinvestmentʼ to be covered by bilateral and multilateral investment treaties (based on contribution of capital, risk, duration and contribution to development).