Sovereign Wealth Funds Flashcards
Sovereign Wealth Fund (SWF)
a collection of government-owned or government-controlled assets
(a) most are funded by revenue from state-owned oil companies (ex: UAE and Norway, also two of the world’s largest)
(b) some are funded by foreign exchange reserves from balance of payments reserves (ex: China)
(c) SWFs are effectively foreign government ownership of local assets –> growing concern and debate over their costs and benefits
The “Fearmongers” (Luft)
(a) increase in SWFs from states that are not allies –> likely that these can use control of local firms for political ends
(a. i) acquire covert commercial information
(a. ii) can invest in media companies to influence output (ex: Organization of Islamic Conference suggested buying stakes in media to correct misperceptions of Islam)
(b) the size of SWFs can mean large market disruptions
(c) Luft argues for much stricter SWF monitoring and rules, especially the requirement that they be limited to non-voting stakes in companies
The “Reasonable” Approach (Truman)
(a) encourage transparency: although US should push for voluntary international best practice guidelines for SWFs, they should minimize barriers to investment in all forms
(a. i) US cannot disengage without risking catastrophic damage to US and world economies
(b) those who call for more controls forget that the US government itself holds more 20% of the government-controlled section of the capital market –> limited voting rights would disenfranchise several trillion dollars worth of US state and local pension funds abroad (would equate to the US shooting itself in the foot)
(c) although SWFs have the potential to disrupt capital markets, their mere size discourages them from doing so
(d) increased scrutiny is important, but US has already taken steps to do this –> the Committee on Foreign Investment in the US (CIFUS) has the power to evaluate and block US or foreign acquisitions to protect national security or enforce US law
(e) US should not act unilaterally but endorse OECD process to strengthen governance of international investment and work with IMF –> create a voluntary code of SWF best practice
