Sovereign Wealth Funds (SWFs): Reactions of Developed Countries

Résumé du document

Sovereign Wealth Funds (SWFs) have attracted increasing attention during the last few years, mainly due to their intervention in the rescue of the American and European financial systems. This intervention came at a time when the other financial systems were in a financial and economic turmoil. The SWFs injected funds in many banks like Citigroup, Morgan Stanley and UBS. They now manage an estimated $3.9 trillion invested in equity, bonds and hedge funds, and this amount is estimated to double by 2015. Despite a broad variety of definitions, the International Monetary Fund defines the Sovereign Wealth Fund as a government investment vehicle funded by the accumulation of foreign exchange assets, and managed separately from the official reserves of the monetary authorities. Though the SWFs, as active investors, have provided economy with undeniable benefits like supplying the market with necessary liquidity, there is a mystery shrouding them. This availability of very little information regarding their structure, objectives and investment strategies creates a lot of apprehension. This has led to the creation of favorable conditions for the emergence of protectionist laws in the OECD countries.

Extraits

[...] It is the secondlargest global supplier of microprocessors after Intel Corporation. Due to liquidity problems following the acquisition of ATI, the second largest graphic controllers' manufacturer, in 2006, AMD had to recourse to the financing of another SWF from Abu Dhabi, Mubadala Investment Company. The company split off its manufacturing activities into a separate entity, Foundry Company”45, which would be subcontracting the processors' manufacturing 44 Nimrod Raphaeli, Spring 2008, The Middle East Quarterly, “Sovereign Wealth Funds: investment vehicles for the Persian Gulf countries” 45 Shilov, A. [...]

[...] We let Western multinationals into our economy, and they have been running the show. But now, when we try and do the same thing, we are told it poses a ‘security risk. It's just hypocritical.” List of strategic sectors and/or investment thresholds This approach was privileged by countries such as France, which has set up a list of sectors considered as strategic. In December 2005, the French government has published a list of 11 industrial sectors considered as strategic. Any foreign investor seeking a shareholding above in any of these sectors should obtain validation from the French authorities prior to any negotiation57. [...]

[...] This has been accompanied by rising concerns from recipient countries regarding investments made by SWFs, mainly explained by a vigorous growth since 2000 due to soaring oil prices and foreign exchange reserves coupled with very little transparency in the funds' activity regarding their objectives, strategy and asset allocation. Totaling an estimated $ 3.9 bn of assets under management as of end 2008, the SWFs have sparked off concerns with respect to investments they carry out that are threefold. The first category of concerns can be summarized through the assertion of Lawrence Summer, the former U.S. secretary Treasury: logic of the capitalist system depends on shareholders causing companies to act so as to maximize the value of their shares. [...]

[...] Therefore, a part of these revenues were transferred into special state-owned investment vehicles (SWFs), in order to be actively invested in a broad variety of assets thus generating additional revenues. The biggest non-commodity funds are: the Government of Singapore Investment Corp, Temasek Holdings (Singapore), SAFE Investment Company, China Investment Corporation, National Social Security Fund (China) Banque de France, November 2008, “Assessment and outlook for sovereign wealth funds” 14 Table 7. SWFs by funding source and by region of origin, March 2009 Source : SWF Institute According to the Sovereign Wealth Fund Institute of SWF are fuelled by oil and gas resources, while 39% are funded by other sources, of which primarily foreign exchange reserves. [...]

[...] This is the reason why a definition on which everyone would agree does not yet exist. Under this perspective, academic papers treating SWFs subjects usually adopt a “work definition” in order to justify their selected funds. Therefore, different authors of academic papers or international bodies define SWFs under the light of their research problem. According to the OECD, a SWFs may have one or more of the following potential objectives: diversify their assets, get a better return of reserves, provide for pensions in the future, to provide for future generations when natural resources run out, price stabilization schemes, to promote industrialization and to promote strategic and political objectives . [...]