Sovereign wealth funds and emerging economies – reap the good; leave the bad

Abstract

As in the physical world, sheer size attracts attention in the financial world mainly for the fear of impact of their movements in financial markets and hence in real economy and its stakeholders. Having originated from the economic activities of sovereigns or that of their establishments and managed by institutions reporting to them, characterized by opacity in their operations arising out of fear of transparency, the activities of most sovereign wealth funds were largely restricted to certain sectors of developed economies or their financial markets. With their growing size and quest for increased returns to serve the economic objectives for which many of them have been created, sovereign wealth funds have done their bit to rid them of few of the above characteristics in an effort to foray into the real economies of the developing world. Though sovereign wealth funds voluntarily adopted the Santiago guidelines, their voluntary nature and the recent financial crisis led to new lessons for the recently created International Forum of Sovereign Wealth Funds (IFSWF) to match sovereign wealth funds and their aspirations with that of the long-term funding aspirations of most emerging economies. OECD guidelines for Corporate Governance (2005) and SWF Recipient Countries (2008) set the right path for sovereign wealth funds to adopt and move forward to promote a mutually rewarding experience for both the investor funds and the investee economies. A global institution for regulation and monitoring of the activities of sovereign wealth funds will go a long way in matching intentions with expectations among capital providers and emerging nations.