Sovereign Wealth Fund Investment in the Shadow of Regulation and Politics
33 Pages Posted: 2 Mar 2010
Date Written: April 13, 2009
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: Suggested Citation