Argument: SWFs should be welcomed for the benefits they bring rather than ostracized for doing what others do.

Developed countries are guilty of a great deal of hypocrisy in their attitude to the sovereign wealth funds of emerging economies. In the past their own companies were used as instruments of state power, for example BP’s origins lie in Britain’s attempt to dominate Iran’s (at the time known as Persia) oil wealth. [1] The developed world is always willing to buy assets on the cheap, as shown by American banks buying up Asian banks during the Asian Financial crisis at the end of the 1990s. [2] Recently SWFs have proved willing to channel a great deal of investment into poorer states, particularly in Africa, their investments have already surpassed the IMF and World bank’s, [3] boosting their economies and assisting their long-term development through the provision of infrastructure such as roads and ports. This is a much more equal relationship than that promoted by the west, with its manipulation of aid and loans to maintain political influence in former colonies.

[1] BP, ‘Our history’. http://www.bp.com/extendedsectiongenericarticle.do?categoryId=10&amp;content...

[2] The Economist, ‘The rise of state capitalism’, 2008. http://www.economist.com/node/12080735

[3] Cilliers, Jakkie, ‘Africa and the future’. http://www.regjeringen.no/nb/dep/ud/kampanjer/refleks/innspill/afrika/ci...

Candidate 1: "Fears about national security are greatly overblown, and are often simply an attempt to justify protectionist measures. Very few companies pose a national security risk, and those that do are covered by existing regulations – so that, for example, the USA could veto Dubai Port World’s bid to take over American ports. Most SWFs do not seek full control of companies they invest in, so they are not in a position to manipulate their assets for political gain, even if they wished to. [1] In reality, countries set up SWFs for economic reasons and they represent a major national investment, the value of which would be expensively destroyed if they once tried to abuse their position. Nor are there any actual examples of a country trying to exert political influence through its sovereign wealth fund. Overall, tying a wide variety of states into the international economic and financial system is beneficial, as it gives them a stake in the peace which the global economy needs for prosperity and so makes them less likely to pursue aggressive foreign policies. Conversely, alienating the governments of other states by designating them as dangerous predators who cannot be allowed to invest in our companies is a sure way to create enemies.

[1] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html"
Candidate 2: "Regulations already exist to prevent foreign investments that might compromise national security. [1] Other than this it would be unfair to discriminate against certain classes of investors. Wealth-creating capitalism relies upon investors seeking to maximise the value of their investments. Without voting rights or the possibility of exercising majority control of a company, SWFs would be unable to ensure that managers were working hard on their behalf, allocating resources efficiently and being held accountable for their decisions.

[1] Gibson, Ronald J., and Milhaupt, Curtis J., ‘Sovereign Wealth Funds and Corporate Governance: A Minimal Solution to the New Mercantilism’, 2009. http://legalworkshop.org/2009/07/19/sovereign-wealth-funds-and-corporate..."
Candidate 3: "Fears about the unrestrained influence of sovereign wealth funds will likely stimulate wider protectionism anyway if effective regulation is not introduced. Protectionist politicians may exploit fears of foreigners to restrict any kind of foreign investment, and seek to build up national champions as a defensive measure. This risks losing all the economic benefits of globalisation, such as opportunities to unwind financial imbalances and to spread expertise, while directing capital to areas where it can have the greatest impact. Better to regulate SWFs now for fear of a greater backlash later."
Candidate 4: "Sovereign Wealth Funds could potentially help the financial system but they will only do so if it is in the national interest of their country to do so. It is this political dimension that is the reason for more regulation. Moreover regulation of SWFs will not prevent these funds from helping the global financial system. They will still be free to invest. Moreover it does not reduce the incentives for them to do so either, regulation will make no difference to a state’s motivations in a time of crisis – the national interest will remain key."
Candidate 5: "While it may be true that the state is often a bad manager of assets and businesses in this case the state is not usually involved in the management of the assets. This is being done through the wealth fund which is often in large part run by people whose background is in finance rather than in government. This use of external independent asset managers in itself should be enough to ease worries over state control. [1] Because SWFs don’t seek to have control over the majority of the businesses they invest in discredited government economic planning is not an issue. [2] Indeed SWFs are operating much more like private companies than state owned enterprises.

[1] Mezzacapo, Simone, ‘The so-called “Sovereign Wealth Funds”: regulatory issues, financial stability and prudential supervision’, 2009, p.46. http://ec.europa.eu/economy_finance/publications/publication15064_en.pdf

[2] Rose, Paul, ‘Sovereign Wealth Funds: Active or Passive Investors?’, 2008. http://thepocketpart.org/2008/11/24/rose.html"
Candidate 6: "Transparency is a good thing, but it would be unfair to single out sovereign wealth funds for special punishment over this issue. Hedge funds and private equity groups are even less transparent than SWFs, and their influence in the global economy is much greater. [1] Some countries (e.g. Norway) already operate very transparent investment strategies. Many have agreed to the Santiago Principles which encourage transparency and disclosure of financial information. [2] It is likely that other countries will come over time to follow their lead voluntarily, as it is in the interest of their own citizens to see that the state is managing their money in an efficiently and honestly.

[1] Avendaño, Rolando, and Santiso, Javier, ‘Are Sovereign Wealth Funds’ Investments Politically Biased? A Comparison with Mutual Funds’, 2009, p.9. http://www.oecd.org/dataoecd/43/0/44301172.pdf

[2] Ibid"
Candidate 7: "The amounts sovereign wealth funds invest in the poorest countries is tiny compared to their overall portfolio. In 2008 the head of the World Bank Robert Zollick was attempting to persuade sovereign wealth funds to invest just 1% of their assets in Africa. [1] Investment by SWFs in Africa is not all good. Sovereign wealth funds are guilty of bad behaviour in the developing world. Some government-backed firms from China and the Arab world (not all of the SWFs) have provided capital to maintain some of Africa’s worst rulers in power, in exchange for the opportunity to gain access to the natural resources of their misruled states. Sudan for example has sold 400,000 hectares to the United Arab Emirates. [2] This has allowed dictators to ignore the conditions (e.g. for political freedoms and economic reforms) attached to funding offered by western aid donors and international institutions such as the World Bank. It also contrasts sharply with the behaviour of western companies, who are led to act more responsibly by pressures from their own governments, investors and media.

[1] Stilwell Amy, and Chopra, Geetanjali S., ‘Sovereign Wealth Funds Should Invest in Africa, Zoellick Says’, 2008. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21711325~pag...

[2] The Economist, ‘Buying farmland abroad, Outsourcing’s third wave’, 2009. http://www.economist.com/node/13692889"
Candidate 8: "Sovereign wealth funds are not new and they are still only a tiny part of the global financial system. They represent only about 2% of global traded securities, and are dwarfed by other financial actors such as mutual funds, or private equity groups and hedge funds. [1] What is more, in comparison with these other players in the global financial system, SWFs are long-term investors looking many years, even decades into the future. This means that they are likely to bring calm, rather than irrational volatility to markets, as they will not be rushed into dumping assets based on a few months of bad data.

[1] The Economist, ‘Sovereign Wealth Funds Asset-backed insecurity’, 2008, http://www.economist.com/node/10533428"
Candidate 9: "In many cases sovereign wealth funds are not even good for the states that own them. Almost all are emerging economies with limited financial expertise available to them, and they are not equipped to invest the money wisely. This has led to SWFs paying inflated prices for dodgy western companies, whose share price has subsequently collapsed, resulting in the loss of billions of dollars of national wealth for example China Investment Corporation lost $500million on Blackstone, Qatar Investment Authority may have lost as much as $2billion in its attempt to buy Sainsburys. [1] Surely it would be better to invest the money at home, or even return it to their people in the form of lower taxes.

[1] The Economist, ‘The rise of state capitalism’, 2008. http://www.economist.com/node/12080735"

The amounts sovereign wealth funds invest in the poorest countries is tiny compared to their overall portfolio. In 2008 the head of the World Bank Robert Zollick was attempting to persuade sovereign wealth funds to invest just 1% of their assets in Africa. [1] Investment by SWFs in Africa is not all good. Sovereign wealth funds are guilty of bad behaviour in the developing world. Some government-backed firms from China and the Arab world (not all of the SWFs) have provided capital to maintain some of Africa’s worst rulers in power, in exchange for the opportunity to gain access to the natural resources of their misruled states. Sudan for example has sold 400,000 hectares to the United Arab Emirates. [2] This has allowed dictators to ignore the conditions (e.g. for political freedoms and economic reforms) attached to funding offered by western aid donors and international institutions such as the World Bank. It also contrasts sharply with the behaviour of western companies, who are led to act more responsibly by pressures from their own governments, investors and media.

[1] Stilwell Amy, and Chopra, Geetanjali S., ‘Sovereign Wealth Funds Should Invest in Africa, Zoellick Says’, 2008. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21711325~pag...

[2] The Economist, ‘Buying farmland abroad, Outsourcing’s third wave’, 2009. http://www.economist.com/node/13692889
