Sovereign Wealth Funds

Sovereign Wealth Funds: Legitimacy, Governance, and Global Power

Gordon L. Clark
Adam D. Dixon
Ashby H. B. Monk
Copyright Date: 2013
Pages: 216
https://www.jstor.org/stable/j.ctt2jc8pg
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  • Book Info
    Sovereign Wealth Funds
    Book Description:

    The worldwide rise of sovereign wealth funds is emblematic of the ongoing transformation of nation-state economic prospects.Sovereign Wealth Fundsmaps the global footprints of these financial institutions, examining their governance and investment management, and issues of domestic and international legitimacy. Through a variety of case studies--from the China Investment Corporation to the funds of several Gulf states--the authors show that the forces propelling the adoption and development of sovereign wealth funds vary by country. The authors also show that many of these investment institutions have identifiable commonalities of form and function that match the core institutions of Western financial markets.

    The authors suggest that the international legitimacy of sovereign wealth funds is based on the degree to which their design and governance match Western expectations about investment management. Undercutting commonplace assumptions about the emerging world of the twenty-first century, the authors demonstrate that even small countries with large and globally oriented sovereign wealth funds are likely to play a significant role in international relations.

    Sovereign Wealth Fundsconsiders how such financial organizations have altered not only the face of finance, but also the international geopolitical landscape.

    eISBN: 978-1-4008-4651-1
    Subjects: Economics, Political Science, Finance

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Figures and Tables
    (pp. ix-x)
  4. Preface
    (pp. xi-xviii)
    Gordon L. Clark, Adam D. Dixon and Ashby H. B. Monk
  5. Acknowledgments
    (pp. xix-xxiv)
  6. 1 Introduction
    (pp. 1-12)

    Over the past few decades, the global economy has witnessed successive paradigm shifts: the Soviet Union collapsed; the United States ushered in the Internet economy; Brazil, Russia, India, and China, among other rapidly growing emerging-market economies, were integrated into the global supply chain; the China–U.S. economic alliance blossomed but then hit “choppywaters”; and finance, with all its associated agents and institutions, came to overshadow, and eventually derail, the real economy. Overall, the market became an incontrovertible force for change in the world, rewriting the geography of the global economy and revolutionizing the interplay between various public and private actors...

  7. 2 The Rise of Sovereign Wealth Funds
    (pp. 13-29)

    On a midsummer visit to Russia in 2008, then–U.S. Treasury Secretary Henry Paulson told Prime Minister Vladimir Putin that he had had a productive discussion with Russian Finance Minister Alexei Kudrin about the country’s SWF. Putin responded by saying, “Since we do not have a sovereign wealth fund yet, you are confusing us with someone else.” To which Paulson replied, “We can discuss what you have called the various funds but we very much welcome your investment.”¹ This brief exchange is illustrative of the confusion surrounding SWFs: while Paulson was correct—Russia’s National Wealth Fund is considered by many...

  8. 3 Rethinking the “Sovereign” in Sovereign Wealth Funds
    (pp. 30-45)

    The recent global financial crisis has seen the reemergence of states as important arbiters of the prospects and direction of capitalist economies. With a near-total collapse of private demand and major turmoil within the financial economy, governments from both developed and developing economies have been forced back to insurers (or saviors) of last resort seeking to cushion the blow of volatile financial markets and speculative excess. For some commentators, particularly those fearful of any sort of government intervention in private markets, the reaffirmation of the state’s role in smoothing the economic prospects of the nation-state foretells the reemergence of state...

  9. 4 The Virtues of Long-Term Commitment: Australia’s Future Fund
    (pp. 46-66)

    Debate over the significance of SWFs has focused, in part, on the geopolitics of investment: the extent to which SWFs are the instruments of their sponsoring nation-states with certain geopolitical goals and objectives. That these interests are expressed, or may be expressed, through investment, given the financial crisis affecting many Western advanced economies, is cause enough to give life to political anxieties in the target or destination states. When coupled with nations’ strategic interests in gaining control of increasingly scarce resources including raw materials, it is little wonder that the governance of (distant) sovereign funds occupies the front pages of...

  10. 5 The Ethics of Global Investment: Norway’s Government Pension Fund
    (pp. 67-85)

    A recurrent theme in commentary about SWFs is the global power associated with their vast financial resources and the fear that SWFs may be the strategic instruments of their sovereign sponsor’s geopolitical interests (Aizenman and Glick 2008; Drezner 2008). When an SWF announces the acquisition or intended acquisition of a country’s infrastructure assets, one response is to suppose that behind the assessment of risk and return is an interest in acquiring a strategic foothold that will pay political dividends for the national sponsor in the future. A second, related, theme is about the effective independence of SWFs from national political...

  11. 6 Insurer of Last Resort: Singapore’s Government Investment Corporation
    (pp. 86-104)

    As the assets of SWFs grew over the years leading up to the global financial crisis, commentators in the West raised doubts about the intended objectives of these funds. For some, the rapid accumulation of financial assets in a relatively small number of foreign, state-run institutions threatened the power and prerogatives of domestic institutional investors (representing the fifth stage of capitalism; see Clark and Hebb 2004). If nonetheless largely compliant, being enmeshed in the reciprocal interests of complacent boards of directors (Bogle 2005), domestic institutional investors saw the incursion of outside SWFs into Western capital markets as a threat to...

  12. 7 Legitimacy, Trade, and Global Imbalances: The China Investment Corporation
    (pp. 105-120)

    As the global financial crisis accelerated through the second half of 2007, the newly established China Investment Corporation (CIC) took a US$5 billion stake in Morgan Stanley. Like many other U.S. institutions, Morgan Stanley was vulnerable to the discounting of its subprime mortgage investments and experienced rapidly eroding confidence in its capacity to withstand the rigors of market volatility. In exchange for the CIC’s investment, Morgan Stanley gave up nearly 10 percent of its common stock. With other, similarly high-profile investments in financial institutions Blackrock and JC Flowers, the Chinese government announced, in effect, that its sovereign wealth would be...

  13. 8 Modernity, Imitation, and Performance: The Gulf States’ Funds
    (pp. 121-136)

    There have been two remarkable episodes of oil price speculation since the 1970s. The first occurred in the mid to late 1970s and created havoc in Western economies, prompting a burst of inflation alongside stagnating economic growth rates and rising unemployment. At the time, the Organization of the Petroleum Exporting Countries (OPEC) was pilloried in the media and attacked by Western governments as holding advanced economies hostage to Middle Eastern sources of crude oil.¹ Whatever the interpretation of events, Gulf States reaped considerable windfall revenues stemming from the spike in oil prices. However, the benefits of this sudden rush of...

  14. 9 Conclusion: Form and Function in the Twenty-First Century
    (pp. 137-154)

    The global financial crisis has challenged those who believe in the integrity of financial markets, those who hold the commonplace presumption in favor of light-touch regulation, and those who believe that markets are valuable mechanisms for managing and distributing risk. Alan Greenspan’s recanting of his hitherto unquestioned belief in the rationality of market agents is emblematic of the reregulation of banking institutions as well as the compensation practices of the global financial industry.¹ Notwithstanding the scope and depth of the global financial crisis, and the debate over its causes and consequences, recent years have also seen the continued growth and...

  15. Appendix: Scoping Best Practice
    (pp. 155-162)
  16. Notes
    (pp. 163-172)
  17. References
    (pp. 173-194)
  18. Index
    (pp. 195-212)