Regulating Sovereign Wealth Funds to Avoid Investment Protectionism

Abstract

Chinese and Emirati purchases of US companies have collapsed because of suspicions that their Sovereign Wealth Fund (SWF) status is a disguise for political ambitions. SWFs have grown in size and number, drawing the attention of many government officials because of their non-transparent nature and expansionary investment policies. Their government-controlled status and non-transparent nature have raised fears among governments of political rather than economic investment motivations. SWFs may use their economic influence to obtain critical information, transfer jobs abroad, or compromise the operation of strategically important companies. Such concerns have led to proposals for national measures to regulate investments of foreign SWFs with a view to controlling their economic and security impact. This article questions whether the existence of SWFs justifies the adoption a particular set of national or international foreign investment regulations. It offers an assessment of competing models from the viewpoint of theory, costs, and implementation. It also examines the alternative model of international self-regulation.