Sovereigns as Shareholders

Abstract:     
This Article considers the increasing impact of equity investments made by sovereign wealth funds. Observers have increasingly viewed sovereign investments with a high degree of suspicion due to the potential for the investments to be used as political tools rather than traditional investment vehicles. While this risk is considerable, much of the discussion surrounding sovereign investment ignores or minimizes the mitigating effect of a number of regulatory, economic, and political factors. This Article argues that continued vigilance, but not additional regulation, is necessary to ensure that U.S. interests are not jeopardized by sovereign investment in U.S. enterprises. While the United States is able to protect its interests in domestic markets, it is limited in the steps it can take to ensure that its interests are not harmed by politically-motivated sovereign investments in other countries. Many countries outside the United States do not have the regulatory structure or political power to adequately defend national interests. Due to the potential political harms associated with sovereign investing, this Article argues in support of the Santiago Principles, an international code of conduct for sovereign investments.

Keywords: sovereign wealth, insitutional investors, foreign investment

JEL Classifications: F13, G18, G38, K20, K22

Accepted Paper Series