Sovereign Wealth Funds
Some Frequently Asked Questions

Western politicians, business leaders and commentators seem paranoid about state-owned sovereign wealth funds (SWFs), particularly those from the Middle East and China. They fear that SWFs follow strategic political objectives -- investing in Western companies and banks to secure control of strategically important industries such as telecommunications, energy and banking -- rather than commercial interests.

A protectionist backlash against sovereign wealth funds is fast emerging: the US, Canada, Australia and Germany have introduced substantial legislative changes to screen and restrict investments by SWFs and other state-owned entities. European Parliaments are considering regulations to curb the potential impact of SWFs on financial markets, corporate governance and security.

Are such fears based on facts or assumptions? Is the "invasion of sovereign wealth funds" real? Do SWFs pose a direct threat to financial stability? Do they have hidden agendas? Are SWFs driven by political considerations? Are governments really using SWFs to pursue nefarious foreign policy objectives? Should anyone be afraid of sovereign wealth funds? Are SWFs providing long-term investments and stability to ailing businesses and economies?

This briefing paper examines these questions in order to understand the potential impact and implications of sovereign wealth funds in a rapidly-changing global political economy.

See also Kavaljit Singh's letter to the Financial Times, published 23 October 2008, "Majority of SWFs are passive, and patient, investors", and an article in The Economic Times of India, published 11 November 2008, "SWFs mark structural shift in world financial order".