Sovereign wealth funds: threat or salvation?

Abstract

Sovereign wealth funds (SWPs)--investment funds overseen by one nation, funded by its foreign currency reserves but managed separately from official currency reserves--are not a new phenomenon in international finance. But recently, they have become a reoccurring headline and a topic of great interest in international economics, due in part to their signficant impact on international markets. Total holdings of international assets by SWFs have grown to at least $3.5 trillion and international reserves--which can be used for similar purposes--have risen to nearly $7 trillion. Given their significant presence, SWFs can raise national security concerns aand questions about the integrity of investment practices. This timely book first traces the origins of SWFs and the buildup of international reserves. It then describes the potential political and economic power issues raised by these large holdings of cross-border assets for three entities: the countries that own them, host countries, and the international financial system. To evaluate the integrity of these funds: Truman presents an updated scoreboard of the funds; the scoreboard comprises 33 elements, which are divided into four categories: structure, governance, transparency and accountability, and behavioral rules. This ground-breaking scoreboard contributed to the development of a set of generally accepted principles and practices--the Santiago Principles--used by the International Monetary Fund. Finally, Truman discusses the evolving role of SWFs in the context of the global economic and financial crisis and its aftermath. This volume offers policy recommendations for countries that manage funds and those countries that expect to receive investments from them in the future.