Sovereign Wealth Funds: Trustworthy Investors or Vehicles of Strategic Ambition?

Abstract

Sovereign wealth funds, the investment arms of foreign governments, are challenging the U.S.'s traditional notions of free enterprise and its commitment to open markets. In this paper, I attempt to discern the facts from the hype and assess whether there is due cause for the U.S. to take affirmative steps to better protect its interests. As investors in U.S. companies, sovereign wealth funds offer a number of benefits. The size of their available funds and their ability withstand short-term volatility help promote economic growth and job production in the U.S., not to mention offer U.S. companies and investors access to emerging markets and economic stability. As their record reveals, the concerns associated with sovereign wealth funds, including corruption and strategically-motivated investments are, to-date, only hypothetical. Nonetheless, the risks raised by the funds are significant, and safeguards to prevent them from becoming reality may be in order. In determining whether and to what extent to regulate sovereign wealth funds, the U.S. must avoid over-restricting the funds' participation in U.S. markets. Instead, the U.S. should consider narrowly-tailored options, such as disclosure of voting records or the use of external asset managers, to address the specific risks associated with sovereign wealth funds.