IB#8-21

Introduction

Sovereign Wealth Funds (SWFs) are the subject of intense debate.  While these funds are hard to define in precise terms, all agree they are government-sponsored pools of financial assets.  With roughly $3 trillion under management today and forecasts that suggest this number could approach $10 trillion in under a decade, many wonder what role these public investment funds will play in private markets. Due to SWFs’ government sponsorship, some fear that they will be used illegitimately to advance political, instead of commercial, agendas.  This geopolitical concern is compounded by a general lack of transparency and a perception among Western analysts of weak accountability and poor governance practices.

These fears are inspiring new rules designed to govern and regulate these institutions, and a series of new policy initiatives at the national and international level are in various stages of consideration and implementation. For example, the U.S. Congress has held hearings and established a taskforce to determine if SWFs are a threat that requires new regulation.  Australia and Germany have enacted new rules that address SWF investments.  The International Working Group of Sovereign Wealth Funds, with the assistance of the IMF, has developed the voluntary ‘generally accepted principles and practices’ for SWFs (also known as the Santiago Principles)...

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