Sovereign Wealth Funds: Active or Passive Investors?

Abstract

Sovereign wealth funds (SWFs)-capital pools created by governments to invest surplus funds in private markets-are increasingly important global financial actors. Many fear that the economic power of SWFs, which is measured in trillions of dollars, will be used strategically and politically. Are fears that SWFs will be used as political tools justified? If political use of SWFs depends on their control of U.S. firms, the answer is almost certainly "no." There is no significant evidence that SWFs have or will use control of U.S. firms to implement governmental policy. Indeed, American political and regulatory constraints will pressure SWFs not only to avoid control, but also to avoid exercising significant influence over U.S. companies in their portfolios. Instead, the present cycle of SWF investment is likely to be characterized by passivity.

Keywords: sovereign wealth

JEL Classification: G34, G38, K20, K22