Multilateral governance of financial markets: the case of sovereign wealth funds

Abstract

The glaring deficiencies of the US sub-prime market in 2007 evolved through 2008 and 2009 into a fully blown global financial crisis (GFC), the worst since the Great Depression of the 1930s. That in turn has spawned sovereign debt crises in a number of European countries in 2010, most dramatically in Greece and Ireland. These events have prompted not only national responses, such as the austerity budgets that have been handed down by a large number of European governments including Greece, Spain and the UK, but also multilateral regulatory initiatives under the auspices of organisations such as the G202 and the International Monetary Fund (IMF). Governments across the world have felt compelled to hurl billions ofdollars into saving financial institutions from collapse, in some jurisdictions effectively the nationalisation of some banks. The regulatory landscape of the financial sector both nationally and internationally is being dramatically reshaped. This increasing regulatory activism of the state is clearly recognised and has received widespread support. What is less widely known is the increasing number of jurisdictions in recent years that are ramping up their levels of investment activity and the potential regulatory repercussions of larger staterelated pools of capital in international financial markets. This paper considers the issue of multilateral regulation of financial markets through the lens of Sovereign Wealth Funds (SWFs),3 discussing their evolution, especially the implications of their increasing size and prevalence in relation to developments in multilateral governance of the financial sector. The paper incorporates the findings of a number of semistructured interviews (n = 42) with SWF stakeholders in Australia, China, Norway, the UK and the US. Those interviewed include: SWF personnel, regulators (both national and international), analysts, bankers, brokers, fund managers, governance professionals, academics and financial journalists.