Sovereign Wealth Fund - Concerns About SWFs

Concerns About SWFs

There are several reasons why the growth of sovereign wealth funds is attracting close attention.

• As this asset pool continues to expand in size and importance, so does its potential impact on various asset markets.
• Some countries worry that foreign investment by SWFs raises national security concerns because the purpose of the investment might be to secure control of strategically important industries for political rather than financial gain. These concerns have led the European Union (EU) to reconsider whether to allow its members to use "golden shares" to block certain foreign acquisitions. This strategy has largely been excluded as a viable option by the EU, for fear it would give rise to a resurgence in international protectionism. In the United States, these concerns are addressed by the Exon–Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, § 5021, 102 Stat. 1107, 1426 (codified as amended at 50 U.S.C. app. § 2170 (2000)), as administered by the Committee on Foreign Investment in the United States (CFIUS).
• Their inadequate transparency is a concern for investors and regulators: for example, size and source of funds, investment goals, internal checks and balances, disclosure of relationships, and holdings in private equity funds. Many of these concerns have been addressed by the IMF and its Santiago Principles, which set out common standards regarding transparency, independence, and governance.
• SWFs are not nearly as homogeneous as central banks or public pension funds.

The governments of SWF's commit to follow certain rules:

• Accumulation rule (what portion of revenue can be spent/saved)
• Withdraw rule (when the Government can withdraw from the fund)
• Investment (where revenue can be invested in foreign or domestic assets)