Recasting the Sovereign Wealth Fund Debate: Trust, Legitimacy, and Governance

Abstract:     
Sovereign Wealth Funds (SWFs) are the subject of intense debate. While these financial institutions are hard to define in precise terms, all agree they are government-owned investment funds operating in private financial markets. Their relevance to the evolving economic, political and financial landscape cannot be overstated, as they challenge the received notions of practice and governance embodied in traditional, Western financial institutions. This has resulted in distrust-more accurately labeled as illegitimacy-by Western policymakers about SWF intentions. Indeed, several countries are considering new, protectionist policies designed to minimize perceived SWF threats. In this article, I seek to evaluate the SWF phenomenon by making three contributions: clarifying what a SWF is and is not; analyzing the concerns of policymakers; and examining the role of governance in these concerns. This paper's theoretical contribution is a conceptualization of the interplay between organizational legitimacy and institutional governance. This is done through an interrogation of available literatures, reference to close-dialogue interviews with elites, and two brief case studies.

Keywords: Sovereign Wealth Funds, Finance, Governance, Geopolitics, Legitimacy

Working Paper Series