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Sovereign Wealth Fund Investment in the Shadow of Regulation and Politics

33 Pages Posted: 2 Mar 2010  

Paul Rose

Ohio State University - Moritz College of Law; Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Tufts University - The Fletcher School of Law and Diplomacy; Fundación Instituto de Empresa, S.L. - IE Business School

Date Written: April 13, 2009

Abstract

This essay, prepared for the Georgetown Journal of International Law's 2009 symposium on sovereign wealth funds (SWFs), considers SWF investment from a novel perspective: How do the external forces acting on sovereign wealth funds and target firms, such as recipient country public sentiment and regulatory burdens, affect SWF dealmaking, and how do recipient country preferences compare with target firm preferences with respect to investor selection‘ Target firms are sensitive to the transaction costs associated with SWF investment, and will structure transactions in a way that matches up with recipient country ideals in order to avoid higher transaction costs. After reviewing several high-profile transactions, I conclude that target firms and SWFs will also attempt to reduce transaction costs through public disclosure. This disclosure has two functions. First, it eases public concern about SWF investment (which as a result will ease pressure on regulators that have approved the transaction). Second, it conditions the market for future transactions, which may reduce transaction costs for transactions with other SWFs and for subsequent investments by the same SWF.

Keywords: Sovereign Wealth Funds

JEL Classification: K22, K33

Suggested Citation

Rose, Paul, Sovereign Wealth Fund Investment in the Shadow of Regulation and Politics (April 13, 2009). Georgetown Journal of International Law, Vol. 40, No. 4, 2009. Available at SSRN: https://ssrn.com/abstract=1561986

Paul Rose (Contact Author)

Ohio State University - Moritz College of Law ( email )

55 West 12th Avenue
Columbus, OH 43210
United States

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States

Fundación Instituto de Empresa, S.L. - IE Business School ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006
Spain

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