(Adds comment from ADB, background)

SINGAPORE, April 28 (Reuters) - The Asian Development Bank is taking large risks by investing more in private equity firms than it is allowed to and internal controls of such investments show "serious weaknesses", the Financial Times reported on Monday. Citing a confidential report by the ADB's evaluation unit, the FT said the bank "breached its capital allocation limit for private equity funds of 5 percent", adding that it needed new risk management standards.

A spokeswoman for the Manila-headquartered lender said the report was still being finalised and the ADB could not comment until after management had seen it.

"It's a work in progress. (When) We get the final report we will study the findings and be in a position to comment," said Ann Quon, ADB's director of external relations.

The multilateral organisation's lending policies have been thrust under the spotlight recently amid criticism from the United States, one of its biggest donors, about its focus on large loans to middle-income countries such as China and India rather than smaller loans to poorer nations.

The ADB's long-term strategy will be discussed later this week in Madrid, where donors will gather to discuss funding ahead of the annual general meeting on May 3-6.

The Financial Times said that the ADB denied violating its own rules, adding that the bank had $650 million in private equity funds out of total equity investments of slightly more than $1.3 billion, which is in line with its 10 percent overall equity limit.

The newspaper cited Seethapathy Chander, deputy director-general of the ADB's private operations, as saying: "allocation of the overall amount to private equity funds is an internal matter and could vary."

According to the Financial Times, the ADB has accelerated private equity fund investments since 2003 and has stakes in about 40 funds, many of which are registered in tax havens such as the Cayman Islands. Slightly more than half of the ADB money they have invested is in China and India.

Last year, the ADB approved loans worth $10.1 billion, the highest since it was set up in 1966 to fight poverty in Asia.

(Reporting by Jan Dahinten; Additional reporting by Carmel Crimmins in Manila; Editing by Tomasz Janowski and Neil Fullick)

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