Sovereign Wealth Funds: The Good Guy Investment Actors?

Abstract

Sovereign wealth funds (SWFs) have been portrayed in some quarters as potential bad guys in global financial markets due to their supposed political as opposed to commercial intentions and influence. However, two key international developments during and since the 2008/2009 Global Financial Crisis have prompted some abatement in the hostility and mistrust displayed towards SWFs. First, SWFs provide substantial and growing sources of much-needed liquidity in global capital markets. Secondly, the Generally Agreed Principles and Practices – GAPP (The Santiago Principles) were created in 2008, which are a multilateral initiative to directly address governance issues associated with SWFs. Thus, SWFs have become a more accepted element of global financial markets and more is now known about how they operate and where their investment priorities tend to lie. However, there is still much to learn about the important roles that SWFs are likely to play in global markets, particularly how they may contribute to the public good. Accordingly, this article considers the good guy potential of SWFs by elucidating how SWFs may not only be a facilitative economic mechanism but also an important tool for societal benefit. In so doing, this article focuses on the role that they might play in domestic investment in order to stimulate the growth of social capital and nation building in their home country, as well as progress made by SWFs themselves to improving their standards and processes of governance.