Order Code RL34336
Sovereign Wealth Funds: Background and
Policy Issues for Congress
Updated March 26, 2008
Martin A. Weiss
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

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Sovereign Wealth Funds:
Background and Policy Issues for Congress
Summary
Sovereign wealth funds (SWFs) are investment funds owned and managed by
national governments. Such funds currently manage between $1.9 and $2.9 trillion
and are expected to grow to over $12 trillion by 2015. This is due to the rapid growth
of commodity prices and large trade surpluses in several emerging market economies.
During the second half of 2007, interest in SWFs increased as Asian and Middle
Eastern SWFs, fueled by surging foreign exchange reserves, invested large sums of
capital in U.S. and other Western companies.
Policy makers in the United States have raised two broad policy concerns about
SWFs: (1) their lack of transparency and (2) their possible misuse for political or
other non-commercial goals. Hearings have been held by several congressional
committees including the House Financial Services Committee and the Senate
Foreign Relations and Senate Banking Committees. Additional congressional
hearings are expected in 2008.
SWFs pose a complex challenge for policy makers. On one hand, SWFs are
long-term investment vehicles looking beyond quarterly results and therefore serve
as stable funding sources during financial turbulence. On the other hand, however,
there are operational concerns stemming from government control (i.e., lack of
transparency and possible non-commercial investment goals). Without transparency,
it is difficult to attain a clear picture of SWF investment activity. A lack of SWF
transparency can also obscure governance and risk-management problems within
SWFs.
Many are also concerned that countries will use SWFs to support what one
analyst has called “state capitalism,” using government-controlled assets to secure
stakes around the world in strategic areas such as telecommunications, energy and
mineral resources, and financial services, among other sectors.
In response to these concerns, many analysts and policy makers are evaluating
the operations of existing SWFs and are looking to the international financial
institutions such as the International Monetary Fund, World Bank, and the
Organization for Economic Cooperation and Development to establish guidelines
for SWF operations. All of these institutions are currently developing proposals that
will be deliberated during 2008. This report will be updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
What Are Sovereign Wealth Funds (SWFs)? . . . . . . . . . . . . . . . . . . . . . . . . 5
What Countries Operate SWFs? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Size of SWFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Policy Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Transparency and Governance-Related Concerns . . . . . . . . . . . . . . . . . . . . 13
Non-commercial Investment Motives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
U.S. and International Policy Responses to SWFs . . . . . . . . . . . . . . . . . . . . . . . 15
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Multilateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Figures
Figure 1. SWF Investments in Western Financial Institutions . . . . . . . . . . . . . . . 3
Figure 2 Segments of the Global Capital Market, USD trillion, 2007 . . . . . . . . . 10
Figure 3. Global Reserve Growth and SWFs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Figure 4. Standard Chartered Ranking of SWFs,by Investment Approach and
Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Tables
Table 1. Foreign Exchange Reserves and Current Account Balances . . . . . . . . . . 8
Table 2. Large Sovereign Wealth Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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Sovereign Wealth Funds:
Background and Policy Issues for Congress
Introduction
Sovereign Wealth Funds (SWFs) are investment funds owned and managed by
national governments. Originally created in the 1950s by oil and resource-producing
countries to help stabilize their economies against fluctuating commodity prices, and
to provide a source of wealth for future generations, they have proliferated
considerably in recent years. Although their lack of transparency makes estimating
SWF investment levels difficult, it is estimated that they currently manage between
$1.9 and $2.9 trillion.1 Estimates of their growth over the next several years vary,
with the consensus hovering around Morgan Stanley’s projection of $12 trillion by
2015.2
SWFs can be funded through a variety of means, including profits from the sale
of commodities (such as oil) or a current account surplus. SWFs can be established
to serve several different objectives. These may include diversifying national assets,
stabilizing the domestic economy against volatile commodity prices, saving for future
generations, getting a better return on investment than traditional foreign exchange
reserves, and promoting political or strategic interests.
During the second half of 2007, Asian and Middle Eastern SWFs, fueled by
surging foreign exchange reserves, invested large sums of capital in the United States
and other developed countries. While SWFs are invested broadly throughout
Western markets, investments have been particularly concentrated in financial
institutions. Following losses stemming from the August 2007 U.S. sub-prime
mortgage crisis, many financial institutions sought large investments from foreign
SWFs and other large institutional investors.3 According to Dealogic, a financial data
provider, SWFs invested $37.9 billion in U.S. financial institutions in 2007, 63% of
their total activity.4
1 All figures are in U.S. dollars.
2 Stephen Jen, “Currencies: How Big Can Sovereign Wealth Funds Be by 2015,” Morgan
Stanley Global Research, May 3, 2007.
3 Peter Goodman and Louise Story, “Overseas Investors Buy Aggressively in the United
States,” New York Times, January 20, 2008.
4 David Rothnie, “Sovereign wealth spending on banks exceeds $50bn,” Financial News
Online, January 14, 2008, at [http://www.financialnews-us.com/?page=ushome&contentid=
2449561453].

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CRS-2
The dramatic recent increase in SWF activity has raised concerns about this
relatively unexamined class of international investors. This report provides
background on SWFs, including what countries operate SWFs and the size of the
SWF market, and discusses two broad areas of concern to Members of Congress and
the international financial community:
! governance and transparency-related issues, and
! possible non-commercial investment goals, including the potential
use of government-controlled investment vehicles to attain global
strategic and political goals.
Some U.S. policy makers stress that their concerns about SWFs are not meant
to undermine the U.S. commitment to open investment. They maintain that the
United States is one of the most open economies in the world and note that foreign
investment in the United States provides many benefits, including lower interest
rates, increased employment, productivity, and access to capital for American
enterprise. Indeed, for countries such as the United States, which have both a high
national budget deficit and historically low levels of public savings, foreign
investment has been crucial.5
Background
The rising profile of SWFs is a direct consequence of the massive accumulation
of global foreign reserve assets over the past decade. While reserve accumulation has
occurred in many emerging market economies, it has been especially sharp among
oil producers and Asian countries that have large trade-surpluses with the United
States and other developed countries. In these countries, reserves have swelled to
levels far in excess of the amount needed for balance of payments support, thus
presenting an opportunity for foreign exchange reserve managers to maximize
returns.
Foreign exchange reserves are traditionally invested in low-risk assets such as
U.S. Treasury bills, but their recent growth has seen an increasing shift of excess
reserves to higher-risk, higher-return investments. In contrast to traditional foreign
exchange reserves, SWFs invest in a much broader array of assets, including stocks,
bonds, fixed assets, commodities, derivatives, and alternative investments such as
real estate and hedge funds. Like private hedge funds and government pension funds,
SWFs often rely on outside expertise and professional fund managers.6
5 For more information on foreign investment in the U.S. economy, see CRS Report
RS21857, Foreign Direct Investment in the United States: An Economic Analysis, and CRS
Report RL32964, The United States as a Net Debtor Nation: Overview of the International
Investment Position, both by James K. Jackson.
6 Stephen Jen, “Economics: How Much Assets Could SWFs Farm Out?” Morgan Stanley
Global Research, January 10, 2008.

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CRS-3
Two key forces drove interest in SWFs during the second half of 2007: (1) the
introduction of new funds and (2) major acquisitions by existing SWFs following
large losses by Western financial institutions from the U.S. sub-prime mortgage
crisis. Many point to the September 29, 2007, launch of the new China Investment
Corporation, Ltd. (CIC), with $200 billion of capital as a catalyst of the initial
Western interest in SWFs.7 In addition to the introduction of the CIC, several Middle
Eastern and Asian SWFs have recently announced or completed large deals, with a
focus on multinational financial institutions following the market turmoil in the
second half of 2007. During the fourth quarter of 2007, Morgan Stanley estimates
that SWFs invested $44.5 billion in Western financial institutions (Figure 1).
Presumably, as long-term investors, SWFs see these investments as currently
undervalued. In addition, many emerging market countries are looking to boost their
own domestic financial institutions, which would likely be facilitated by the transfer
of knowledge gained from major investments in more experienced Western financial
institutions.
Figure 1. SWF Investments
in Western Financial
Institutions
($ billions)
$50
$44.50
$45
$40
$35
$30
$25
$20
$14.7
$13.30
$15
$7.60
$10
$4.80 $2.60
$2.30
$5
$0.70
$0.20
$0
Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108
Source: Morgan Stanley.
Large recent deals include the following:
! On September 20, 2007, the Mubadala Development Company,
which is owned by the government of Abu Dhabi, announced a deal
to buy a 7.5% stake in the Carlyle Group, a U.S. buyout investment
firm, for $1.35 billion.8
7 See CRS Report RL34337, China’s Sovereign Wealth Fund, by Michael F. Martin.
8 Thomas Heath, “Government of Abu Dhabi Buys Stake in Carlyle,” Washington Post,
(continued...)

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CRS-4
! On November 26, 2007, the Abu Dhabi Investment Authority
(ADIA), the world’s largest SWF, announced a deal to buy a 4.9%
stake in Citigroup for $7.5 billion.9
! On December 10, 2007, UBS AG, a Swiss bank, announced that
the Government of Singapore Investment Corporation is investing
$9.75 billion for a 9% stake, while a Saudi investor is investing
$1.77 billion to UBS AG.10
! On December 19, 2007, Morgan Stanley, a U.S.-based investment
bank, announced that the China Investment Corporation would
invest $5 billion for a 9.9% share.11
! On December 24, 2007, Merrill Lynch announced a $6.2 billion
private placement from Singapore’s Temasek and New York-based
Davis Selected Advisors. Temasek is expected to invest $4.4 billion
in Merrill Lynch common stock, with the option to buy an additional
$600 million in stock by March 2008.12
! On January 15, 2008, Citibank announced that it is receiving $14.5
billion from investors including the governments of Singapore and
Kuwait, former Chairman Sanford Weill, and Saudi Prince Alwaleed
bin Talal. On the same day, Merrill Lynch announced that it is to
receive $6.6 billion from a group led by Tokyo-based Mizuho
Financial Group Inc., the Kuwait Investment Authority, and the
Korean Investment Corp.13
Several international bodies, including the IMF, the U.S. Treasury, and the
European Central Bank have drawn attention to the positive impact that this SWF
investment appears to have exerted so far by providing liquidity and stability during
8 (...continued)
September 21, 2007.
9 “Citi to Sell $7.5 Billion of Equity Units to the Abu Dhabi Investment Authority,”
Business Wire, November 27, 2007, at [http://online.wsj.com/public/article/PR-CO-
20071126-908539.html?mod=crnews].
10 “Sovereign Wealth Funds bet on Banks,” Associated Press, December 10, 2007, at
[http://biz.yahoo.com/ap/071210/soverign_wealth_funds_glance.html?.v=1].
11 Chris Oliver, “Details of CIC’s stake in Morgan Stanley Revealed,” MarketWatch,
December 24, 2007, at [http://www.marketwatch.com/news/story/details-cics-stake-morgan-
stanley/story.aspx?guid=%7B6175589F-C8D1-49AE-8FA4-EB61BF8F7AC2%7D].
12 “Merrill Lynch Will Sell Stake to Temasek Holdings,” Reuters, December 25, 2007, at
[http://www.cnbc.com/id/22395384/].
13 Yalman Onaran, “Citigroup, Merrill Receive $21 Billion From Investors,” Reuters,
January 15, 2007, at [http://www.bloomberg.com/apps/news?pid=20601087&sid=anjGW
hqi0PSE&refer=home].

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CRS-5
the U.S. sub-prime mortgage crisis that began during the summer of 2007.14 In its
December 2007 six-month Financial Stability Review, the European Central Bank
wrote:
As SWFs, in particular those that put the emphasis on savings for future
generations, are likely to have a long-term horizon for their investments, they
may also contribute to the broadening of the long-term investor base for risky
assets, such as equities, corporate bonds, emerging market assets, private equity
and real estate. In this regard, such funds could become a more stable investor
base for risky assets in certain markets. In addition, provided that the
investments of such funds are driven entirely by risk and return considerations,
SWFs may contribute to a more efficient allocation and diversification of risk at
the global level.15
While SWFs represent a small percentage of all investment classes globally,
their rapid and projected growth could increase demand for riskier assets, including
equities and bonds. Deutsche Bank estimates that future SWF asset allocation could
lead to a gross capital inflow of over $1 trillion into global equity markets and $1.5
trillion into global debt markets over the coming five years.16 Merrill Lynch, using
more aggressive assumptions, estimates that $3.1 to $6 trillion is likely to be invested
in riskier assets by SWFs in the next five years.17
What Are Sovereign Wealth Funds (SWFs)?
While the term “Sovereign Wealth Fund” was coined only recently, SWFs have
a more than 50-year history, with the first fund established by Kuwait in 1953.18
There is no universally agreed upon definition of SWFs. The U.S. Treasury
Department narrowly defines SWFs as “a government investment vehicle which is
funded by foreign exchange assets, and which manages those assets separately from
the official reserves of the monetary authorities (the Central Bank and reserve-related
functions of the Finance Ministry).”19 The U.S. Treasury Department’s definition is
meant primarily to distinguish SWF investment from official reserves managed by
14 For more information on the sub-prime crisis, see CRS Report RL34182, Financial
Crisis? The Liquidity Crunch of August 2007, by Darryl E. Getter, Mark Jickling, Marc
Labonte, and Edward Vincent Murphy.
15 Financial Stability Review, European Central Bank, December 2007, at
[http://www.ecb.int/pub/pdf/other/financialstabilityreview200712en.pdf].
16 Steffen Kern, “Sovereign Wealth Funds - State Investments on the Rise,” Deutsche Bank
Research, September 10, 2007.
17 Alex Patelis, “The Overflowing Bathtub, the running tap and SWFs,” Merrill Lynch
Economic Analysis, October 6, 2007.
18 For the first use of the term Sovereign Wealth Fund, see Andrew Rozanov, “Who Holds
the Wealth of Nations,” State Street Global Advisors, August 2005, at
[http://www.ssga.com/library/esps/Who_Holds_Wealth_of_Nations_Andrew_Rozanov_
8.15.05REVCCRI1145995576.pdf].
19 “Report to Congress on International Economic and Exchange Rate Policies,” Department
of the Treasury, December 2007, at [http://www.treas.gov/offices/international-affairs/
economic-exchange-rates/].

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CRS-6
a country’s central bank. Because the primary goals of official foreign reserves are
liquidity and security, the investment horizon for these for reserves is short.
Some observers provide a more detailed definition of SWFs. Stephen Jen, a
currency analyst at Morgan Stanley, expands on the Treasury definition to provide
a broader understanding of SWFs and how they differ from official foreign reserves
and other government-sponsored funds. According to Jen, there are five key traits
of SWFs. They are (1) sovereign government entities with (2) high foreign currency
exposures, (3) no explicit liabilities (such as a national state pension fund), (4) high-
risk tolerances, and (5) long investment horizons.20
The IMF divides SWFs into several categories based on their stated goals. In
practice, however, many SWFs combine elements of the following three categories.
The three primary types of SWFs, according to the IMF, are as follows:
(1) Stabilization funds — Volatile international market prices are a primary
concern for resource- and commodity-intensive economies. Some commodities face
price fluctuations of an average of 20%-25% per year. To mitigate this volatility,
several countries have established funds to sterilize capital inflows21 and stabilize
fiscal revenues. Because stabilization funds serve a more immediate function than
long-term savings funds, they tend to be more conservative in their investment
decisions, focusing on fixed income rather than equity investments.22 Examples
include Russia’s Stabilization Fund of the Russian Federation and Kazakhstan’s
National Oil Fund.
(2) Savings funds — Savings funds are intended to share wealth across
generations. For countries rich in natural resources, savings funds convert non-
renewable natural resources into a diversified portfolio of international financial
assets to provide for future generations or other long-term objectives. According to
the IMF, while newer oil funds predominantly focus on stabilization objectives, the
recent increase in oil prices has allowed SWFs to emphasize savings objectives.
Becuase savings funds have longer investment horizons than pure stabilization funds,
they invest in a broader range of assets, including bonds and equities, as well as other
forms of alternative investments, such as real estate, private equity, hedge funds, and
commodities. Examples include the Abu Dhabi Investment Authority, Kuwait
Investment Authority, Singapore’s Government Investment Corporation, and the
China Investment Corporation.
(3) Reserve investment corporations — Reserve investment corporations are
funds established to reduce the opportunity cost of holding excess foreign reserves
20 Stephen Jen, “Currencies: The Definition of a Sovereign Wealth Fund,” Morgan Stanley
Research, October 25, 2007.
21 Currency sterilization is a form of monetary action in which a country’s central bank
attempts to insulate itself from the foreign exchange market to counteract the effects of a
changing monetary base by selling or buying the domestic currency in the foreign exchange
market to stabilize the value of the domestic currency. For more information, see Jang-Yung
Lee, “Sterilizing Capital Inflows,” International Monetary Fund, 199, at [ttp://www.imf.org/
external/pubs/ft/issues7/issue7.pdf].
22 Rachel Ziemba, “Responses to Sovereign Wealth Funds: Are ‘Draconian’ Measures on
the Way?,” RGE Monitor, November 2007.

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CRS-7
or to pursue investment policies with higher returns. Reserve investment
corporations adapt more aggressive investment strategies, including taking direct
equity stakes. These funds typically seek higher returns than other SWFs and use
leverage (i.e., debt) in their investments. Historically, theses vehicles tend to be more
secretive than other SWFs that are primarily portfolio investors.23 Examples of such
funds are Singapore’s Temasek, Qatar’s Investment Authority, and Abu Dhabi’s
Mudabala.24
Among funds, there are substantial differences in risk-return profiles,
investment horizons, asset allocation, eligible instruments, risk tolerances, and
constraints.25 Because each fund is different and has varying goals and objectives,
it is difficult to generalize about the investment strategies of SWFs as a class. For
example, an oil-exporting economy may initially establish a SWF for stabilization
purposes. However, if the assets under management by the SWF grow to exceed the
levels needed for stabilization, the country may either change the priorities and
investment strategy of the fund or establish a separate fund with a more aggressive
investment approach. Thus, several countries have multiple sovereign wealth funds.
For example, the United Arab Emirates’s primary fund, the Abu Dhabi Investment
Authority (ADIA), was established in 1974 to invest surplus cash in assets that
provide steady gains and returns over a long time-horizon using a portfolio
investment strategy. In 2002, the United Arab Emirates established Mubadala
Development to pursue direct investment projects targeted at higher returns.
What Countries Operate SWFs?
The first SWF was established by Kuwait in 1953 as a means to help stabilize
the economy from fluctuating oil prices.26 In 1956 the Gilbert Islands (now Kiribati)
established the Revenue Equalization Reserve Fund to manage profits from
phosphate mining. Following Kuwait and Kiribati, the next major SWFs were
created in the 1970s in the wake of the oil shock. The most recent wave began in the
1990s with the Norway Government Pension Fund-Global in 1990 and continues to
this day. In the last five years, funds have been established by China, Iran, Russia,
Qatar, and the United Arab Emirates.
As noted previously, the recent growth of SWFs is a consequence of rapid
growth in emerging market reserves driven by (1) the impact of rising oil prices for
23 Similar entities to SWFs that raise many of the same concerns are state-backed companies
engaged in foreign acquisitions. For example, in 2005 an attempt by the China National
Offshore Oil Cooperation (CNOOC) to purchase the U.S. energy company Unocal raised
substantial congressional concerns and was eventually abandoned. For more information
on the CNOOC case, see CRS Report RL33093, China and the CNOOC Bid for Unocal:
Issues for Congress, by Dick K. Nanto, James K. Jackson, Wayne M. Morrison, and
Lawrence Kumins.
24 “Global Financial Stability Report: September 2007,” International Monetary Fund,
September 2007.
25 For more information on the challenges of establishing a SWF, see Andrew Rozanov,
“Sovereign Wealth Funds: Defining Liabilities,” State Street Global Advisors, May 2007.
26 The first Kuwaiti SWF was called the Kuwait Investment Board. It was later acquired by
a separate fund, the Kuwait Investment Authority, which was founded in 1960.

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CRS-8
Middle Eastern economies and (2) large trade surpluses, net foreign direct investment
flows, and high savings rates among Asian economies. Reserve accumulation has
been especially sharp in the case of China, where there has been extensive
intervention in the foreign exchange markets to limit the yuan’s appreciation against
the dollar.27
Analysts estimate that foreign assets held by sovereign nations currently exceed
$5 trillion and are, as the growing U.S. current account imbalance would indicate,
increasing at a significantly more rapid rate in emerging market countries with high
savings rates than in the industrialized countries. Table 1 provides information on
the 10 largest holders of foreign reserves (as of the end of 2006) and five additional
countries that have large SWFs.
Table 1. Foreign Exchange Reserves and Current
Account Balances
Foreign Exchange Reserves
Current
2006
Change
Share of
Account/GDP
(USD
‘01-‘06
GDP 2006
Reserves/GDP
2002-2006
Billions)
(Percent)
(Percent)
(Percent)
(Percent)
ChinaS
1,066
403
41
8.6
5.5
Japan
875
126
20
2.2
3.5
RussiaSR
295
807
30
8.4
9.7
Taiwan
266
118
75
8.9
7.1
KoreaSR
238
133
27
3.9
1.9
India
170
276
19
3.7
-0.3
SingaporeSR
136
81
103
11.3
22.5
Hong Kong
133
20
70
2.6
9.9
Brazil
86
139
8
1.4
1.0
MalaysiaS
82
185
54
8.9
13.3
AlgeriaS
78
333
68
14.0
17.2
NorwayS
56
153
17
2.6
14.3
United Arab
EmiratesS
28
98
16
2.4
12.3
KuwaitS
12
32
13
0.9
32.9
QatarS
5
346
10
2.4
20.0
Source: Peterson Institute for International Economics.
Notes: S = has one or more sovereign wealth funds; R = reserves include sovereign wealth fund in
whole or in part.
Middle East. The Middle East region is currently experiencing a substantial
economic boom due to record high oil prices. The value of oil and gas exports from
the Middle East was approximately $650 billion in 2007 and is expected to rise to
almost $750 billion in 2008. Because these countries either largely control or heavily
tax oil production, government revenue from oil and gas is now estimated at $510
27 CRS Report RL32165, China’s Currency: Economic Issues and Options for U.S. Trade
Policy, by Wayne M. Morrison and Marc Labonte.

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CRS-9
billion for 2007, and will likely rise above $580 billion in 2008.28 According to RGE
Monitor, between 2002 and 2007, the Gulf Cooperation Council (GCC) countries
(excluding Saudi Arabia) transferred over $300 billion to their SWFs.29
Like other GCC countries, Saudi Arabia, as the world’s largest producer and
exporter of oil, has benefitted from increasing oil revenues in recent years. Although
Saudi Arabia has not formally established a SWF, its central bank holds a significant
amount of international investments outside of traditional foreign reserves, and thus
is not reflected on the previous chart. Separately, the Saudi central bank controls an
estimated $320 billion in foreign assets, with “additional reserves that are not made
public for national security reasons.”30 In December 2007, Saudi Arabia announced
plans to establish a sovereign wealth fund likely to be the world’s largest. According
to the Financial Times, the proposed Saudi fund would dwarf the world’s largest
SWF, the United Arab Emirates’ Abu Dhabi Investment Authority (ADIA).31 The
effort is likely to be spearheaded by the government’s Public Investment Fund, which
has a mandate to invest only within Saudi Arabia.
Asia. Among Asian economies, the expansion of reserves has been even more
dramatic. By 2006, Asia held 54% of the then $4.2 trillion of worldwide reserves,
more than the global total 10 years earlier.32 Asian reserve accumulation is largely
the result of persistent and sustained current account surpluses with the United States
and other Western countries.33 Following the 1998 Asian financial crisis, many
Asian economies began accumulating large amounts of reserves to provide adequate
insurance against any future currency fluctuations or macroeconomic insecurity.34
Two additional factors motivate Asian reserve accumulation. First, several countries
have pursued an export-led growth strategy targeted at the United States involving
significant market intervention (especially by China) to maintain a stable undervalued
exchange rate.35 Second, many Asian emerging market economies have financial
28 Regional Economic Outlook: Middle East and Central Asia, International Monetary Fund,
October 2007. Included oil exporters are Algeria, Azerbaijan, Bahrain, Iran, Iraq,
Kazakhstan, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, Turkmenistan, and the
United Arab Emirates.
29 Brad Setser and Rachel Ziemba, “Understanding the New Financial Superpower — The
Management of GCC Official Foreign Assets,” RGE Monitor, January 2008. Member
countries of the GCC are: Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab
Emirates.
30 Nawaf Obaid, “Assessing Saudi Power,” Middle East Times, November 13, 2007.
31 Henny Sender and David Wighton, “Saudis Plan Huge Sovereign Wealth Fund,”
Financial Times, December 21, 2007.
32 Steffen Kern, “Sovereign Wealth Funds-State Investments on the Rise,” Deutsche Bank
Research, September 10, 2007.
33 Joshua Aizenman, “Large Hoarding of International Reserves and the Emerging Global
Economic Architecture,” National Bureau of Economic Research Working Paper 13277,
July 2007.
34 For more information on the Asian Financial Crisis, see CRS Report 98-434 E, The Asian
(Global?) Financial Crisis, the IMF, and Japan: Economic Issues, by Dick K. Nanto.
35 “New paradigm changes currency rules,” Oxford Analytica, January 17, 2008.

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CRS-10
markets that are not developed enough to absorb the traditionally high levels of
private savings seen in Asia.36
The Size of SWFs
It is difficult to accurately measure the amount of assets under management by
SWFs because many funds do not disclose much information about their operations
and assets. The funds believed to be the largest do not disclose their size, investment
strategies, or current holdings. Estimates for the size of the largest fund, the United
Arab Emirates’ ADIA, for example, range widely between $500 and $900 billion.
Reportedly, ADIA has achieved a 20% rate of return for many years and rarely
considers deals less than $100 million.37
Official and private sector analysts estimate that there is between $1.9 and $2.9
trillion under management by SWFs. This is significantly smaller than other
investment classes (Figure 2).
Figure 2 Segments of the Global Capital Market, USD trillion, 2007
$90
80.0
$80
$70
$60
53.0
55.0
$50
$40
$30
18.5
19.3
21.6
$20
$10
0.7
2.9
3.2
6.0
6.4
$0
Fs
W
sets
arket
arket
eserves
Turnover
R
ond M
rivate Equity
S
edge Funds
utual Funds
quity M
ent Industry
P
H
M
ension Funds
aily FX
P
D
lobal FX
Insurance As
lobal B
G
lobal E
G
anagem
G
sset M
A
Source: Norges Bank
However, analysts expect that if oil prices remain, and there no immediate
correction of current global imbalances, SWFs will grow rapidly over the next few
years. Morgan Stanley estimates that if foreign reserves continue to increase at a
current pace, they could grow to $12 trillion by 2015.38 Several factors could
weaken these growth projections, including a cyclical economic downturn, a
36 Euro riding high as an international reserve currency, Deustche Bank Research, May 4,
2007.
37 Henny Sender, Live at Apollo (Management): Plan to Cash In, Limit Scrutiny, Wall Street
Journal, July 17, 2007.
38 Stephen Jen, “Currencies: How Big Can Sovereign Wealth Funds Be by 2015,” Morgan
Stanley Global Research, May 3, 2007.

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CRS-11
reduction in oil prices, or a weakening of competitiveness in Asian exporting
economies. On the contrary, given the rapid increase in emerging market foreign
exchange reserves, if countries decide to increase transfers from official reserves to
SWFs, projected figures could be substantially higher. SWFs financed by oil and gas
exports are estimated to account for around two thirds of SWFs by amount invested.
Asian funds financed by current account surpluses make up the rest.39 Table 2
provides a list of the largest funds. Figure 3 combines global foreign reserve growth
with recent growth of Asian and oil SWFs.
Table 2. Large Sovereign Wealth Funds
Current
Source
Date
Size
of
Country
Name
Est.
($ billions)
Funds
Abu Dhabi Investment Authority
1976
500-875
Oil
United Arab
and Corporation
Emirates
Mubadala Development Company
2002
10
Oil
Isithmar
2003
4
Oil
Government Pension Fund —
1990
329
Oil
Norway
Global
Government of Singapore
1981
100-330
Other
Singapore
Investment Corporation
Temasek Holding
1974
108
Other
Kuwait
Kuwait Investment Authority
1960
213
Oil
Stabilization Fund of the Russian
2004
141
Oil
Russia
Federation
China
China Investment Corporation
2007
200
Other
Qatar
Qatar Investment Authority
2005
50
Oil
Australia
Future Fund
2006
49
Other
Algeria
Revenue Regulation Fund
2000
43
Oil
United States
Alaska Permanent Fund
1976
40
Oil
Brunei
Brunei Investment Agency
1983
30
Oil
Korea
Korea Investment Corporation
2005
20
Other
Kazakhstan
National Oil Fund
2000
19
Oil, Gas
Malaysia
Khazanah Nasional
1993
18
Other
Venezuela
National Development Fund
2005
15
Oil
Macroeconomic Stabilization Fund
1998
1
Oil
Alberta Heritage Savings Trust
1976
15
Oil
Canada
Fund
Economic and Social Stabilization
2006
10
Other
Chile
Fund
New Zealand
Superannuation Fund
2001
10
Other
Iran
Oil Stabilization Fund
2000
9
Oil
Source: Peterson Institute for International Economics
39 Stephen Jen, “How Big Could Sovereign Wealth Funds Be by 2015,” Morgan Stanley
Perspectives, May 3, 2007.

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CRS-12
Figure 3. Global Reserve Growth and SWFs
(USD Billion, rolling 4th quarter sums)
1600
1400
1200
1000
800
600
400
200
0
00
00
0
01
01
02
3
03
04
04
05
6
6
07
07
c-99
-03
-06
-0
pr-
r-01
r-0
r-04
r-0
r-07
ug-
c-0
ug-
ec-
pr-
g-02 c-02
ug
ec-
ug-
ec-
pr-
g-05 c-05
ug
ec
ug-
ec-
De
A
A
De
Ap
A
D
A
Au
De
Ap
A
D
Ap
A
D
A
Au
De
Ap
A
D
Ap
A
D
Asian reserves
Asian SWFs
Oil reserves
Oil SWFs
World official asset growth
Source: RGE Monitor
Policy Issues for Congress
The government control of SWFs has raised two broad policy concerns, namely
(1) the lack of SWF transparency and (2) the potential use of SWF capital for
strategic or political (i.e., non-commercial) purposes. These concerns as applied to
specific SWFs are mapped in Figure 4. The X axis illustrates fund transparency, or
levels of disclosure. The Y axis measures the active, or strategic, nature of their
stated (or perceived) investment philosophy. For example, the funds of Norway,
Alaska, and Alberta, Canada, are conventionally invested in a wide range of
investments and are highly transparent. Malaysia’s SWF and Singapore’s Temasek,
while also highly transparent, pursue a more strategic approach to their investments,
targeting various industries that are of interest to their respective governments. The
funds in the upper-left quadrant are of most concern to Western policy makers.
These are the funds that disclose the least information about their funds and are the
most strategic in their investment philosophy.

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CRS-13
Figure 4. Standard Chartered
Ranking of SWFs,
by Investment Approach and
Transparency
Transparency and Governance-Related Concerns
Given the recent and projected growth of SWFs, many analysts stress the need
for increased transparency of SWF activity. There are no supra-national regulations
or disclosure requirements for the size of SWFs, their investment strategies, or their
current holdings. Unlike privately owned, nationally regulated funds, SWFs are not
required to provide information to stock-holders and stake-holders. “In terms of
disclosure on fund performance, investment strategy, or even basic philosophy, many
[SWFs] rank below the most secretive hedge fund,” according to Gary Kleiman, a
senior partner at Kleiman International Consultants, an emerging financial markets
consulting group.40 Of the existing national funds, only Norway’s fund is universally
considered to be transparent and publically accountable.
Minimal SWF transparency masks SWF investment activity and can obscure
governance and risk-management problems within the funds. This can have
distressing consequences for policy makers. First, without insight into SWF activity,
it is difficult to assess systemic risks or to determine whether SWFs are in fact
pursuing strategic, non-commercial investment strategies (see next section). Second,
limited disclosure makes it difficult to assess the management and governance of the
funds and therefore difficult to identify mismanagement or corruption by fund
mangers. Conflating this problem, many of these SWFs are established in countries
that currently lack the underpinnings for good SWF governance or SWF oversight.
This is of concern to policy makers, because sizable failures due to poor
40 Tony Tassell and Joanna Chung, “The $2,500 Question,” Financial Times, May 25, 2007.

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CRS-14
management, particularly if concentrated within certain sectors, could affect national
or global markets.
Some analysts have tried to empirically measure the lack of SWF transparency.
The Peterson Institute of International Economics (IIE) has tabulated a SWF
scorecard, that among other variables, looks at transparency and accountability.41 For
its transparency and accountability figure, IIE scored several questions, including the
following:
! Do regular reports on the investments by the SWF include the size
of the fund? Information on the returns it earns?
! Do reports provide information on the types of investments?
Information on the geographic location of investments? Information
on the specific investments, for example, which instruments,
countries, and companies? Information on the currency composition
of investments?
! Is the SWF subjected to a regular audit? Is the audit published? Is
the audit independent?
Consistent with Figure 3 above, the IIE found that the largest funds (i.e., those
owned by the United Arab Emirates, Qatar, Kuwait, and China) scored very low on
the transparency and accountability rankings.
Non-commercial Investment Motives
While the ostensible goal of SWF investment is long-term value creation,
government control could mean that a SWF may be motivated by non-commercial
considerations in its investment decisions. Felix Rohatyn, a prominent investment
banker and former U.S. official, has noted that for many funds, political and
commercial objectives are closely intertwined. According to Mr. Rohatyn, “they are
making investments that they probably think are O.K. but not spectacular.”42
However, for these funds, “there has to be a political objective over and above the
rate of return.”43
Many U.S. policy makers are concerned that countries will use SWFs to support
what one analyst has called “state capitalism,” using government-controlled assets
to secure strategic stakes around the world in areas such as telecommunications,
41 Edwin M. Truman, “Sovereign Wealth Fund Acquisitions and Other Foreign Government
Investments in the United States: Assessing the Economic and National Security
Implications,” Testimony before the Committee on Banking, Housing, and Urban Affairs
United States Senate, November 14, 2007. Testimony is available at [http://iie.com/
publications/papers/truman1107.pdf].
42 Andrew Ross Sorkin, “What Money Can Buy: Influence,” The New York Times, January
22, 2008, at [http://www.nytimes.com/2008/01/22/business/22sorkin.html?dlbk].
43 Ibid.

---

CRS-15
energy resources, and financial services, among other sectors.44 Recent deals in the
energy and finance sector suggest that securing access to natural resources and
developing domestic financial markets appear to be the two primary SWF strategic
objectives.45
A report by Citigroup notes that “some sovereign wealth funds invest purely to
achieve financial returns and portfolio diversification while others have a broader
economic or social agenda.”46 Such an agenda could be benign; many countries have
expressed their interest in using investments in foreign financial institutions to
acquire knowledge and technology to help build their own domestic financial
institutions. On the other hand, many are concerned that countries may use their
SWFs to gain access to other countries’ natural resource industries or other politically
sensitive sectors. Such concern is not limited to Western countries. In January 2006,
one of Singapore’s SWFs, Temasek, purchased from the family of then-Prime
Minister Thaksin Shinawatra a controlling stake in the Thai telecom company Shin
Corporation, which included taking control of space satellites used by the Thai
military. This purchase sparked a political crisis in Thailand, which eventually led
to the ousting of Thaksin’s government.
U.S. and International Policy Responses to SWFs
For many developed countries, SWFs are a double-edged sword that provide
both benefits and risks. Many industrialized countries are struggling with how to
take advantage of the additional liquidity that SWFs can provide while at the same
time mitigating challenges raised by the lack of transparency and politically driven
nature of some of these funds.
44 Gerald Lyons, “State Capitalism: The Rise of Sovereign Wealth Funds,” Standard
Chartered, October 15, 2007. Document is available from the author.
45 Richard Portes, “Sovereign Wealth Funds,” VOXEU, October 17, 2007, at
[http://www.voxeu.org/index.php?q=node/636]. See also Huw Van Stenis, “Banks &
Financials: Sovereign Wealth Funds — building stakes in financials,” Morgan Stanley
Research Europe, September 24, 2007.
46 The World Economic Forum ranks the United States first in its 2007 competitiveness
report. The Global Competitiveness Report 2007-2008, World Economic Forum, at
[http://www.gcr.weforum.org/].

---

CRS-16
United States
The Bush Administration has been generally supportive of SWF investment,
maintaining that the United States is open to foreign investment and that “money is
naturally going to gravitate toward dollar-based assets because of the strength of our
economy,” according to Treasury Secretary Henry Paulson Jr.47 Secretary Paulson
further noted, however, that “I’d like nothing more than to get more of that money.
But I understand that there’s a natural fear that they’re going to buy up America.”48
The magnitude of financial impact combined with the limited transparency and
potentially non-commercial investment motivations of government-sponsored entities
has sparked concern among some analysts and Members of Congress. Senator
Richard Shelby has requested a study from the Government Accountability Office
(GAO) to ensure that SWFs are “effectively monitored,” according to a Shelby aide.49
The Senate Banking Committee held hearings on SWFs on November 13, 2007. In
his opening remarks, Senator Evan Bayh summarizes the two primary concerns about
SWF activity in the United States:
A lack of transparency that characterizes many sovereign wealth funds
undermines the theory of efficient markets at the heart of our economic system.
In addition, unlike private investors, pension funds and mutual funds,
government owned-entities may have interests that will take precedence over
profit maximization. Just as the United States has geopolitical interests in
addition to financial ones, so do other countries. Just as we value some things
more than money, so do they. Why should we assume that other nations are
driven purely by financial interests when we are not?50
In a December 2007 speech before the Gulf Cooperation Council in Bahrain,
U.S. Deputy Treasury Secretary Robert Kimmett said that SWF investments “may
raise legitimate questions about national security” and “their scale/number and
tendency toward lack of transparency raise the possibility of potentially negative
impacts on global financial stability if funds operate without prudent governance and
investment management standards.”51 Christopher Cox, Chairman of the U.S.
Securities and Exchange Commission (SEC), has raised concerns about the conflict
of interest that may arise when a fund is owned and managed by the government that
is legally required to regulate it. Cox has stated that in some cases, foreign
governments may not be fully cooperative with insider-trading investigations. Cox
47 Steven R. Weisman, “Concern About ‘Sovereign Wealth Funds’ Spreads to Washington,
International Herald Tribune, August 20, 2007.
48 Ibid.
49 Christopher S. Rugaber, “Agency Investigates Sovereign Funds,” Associated Press,
January 11, 2008, at [http://www.forbes.com/feeds/ap/2008/01/11/ap4522903.html].
50 Senate Banking, Housing and Urban Affairs Committee Hearing on Foreign Government
Investment in the United States, November 14, 2007. Transcript available from
Congressional Quarterly at [http://www.cq.com].
51 Tessa Moran, “US Treasury’s Kimmitt says sovereign wealth funds not cause for alarm,”
Forbes.com, at [http://www.forbes.com/markets/feeds/afx/2007/12/04/afx4403204.html].
See also, Robert M. Kimmett, “Public Footprints in Private Markets,” Foreign Affairs,
January/February 2008.

---

CRS-17
also expresses concern that SWFs may be the beneficiaries of economic intelligence
from national security services.
Laws exist in the United States to regulate foreign investment in the U.S.
economy. Foreign investments that raise national security concerns are subject to
review by the U.S. Government’s Committee on Foreign Investment in the United
States (CFIUS) for review.52 It is unclear, however, to what extent sovereign wealth
funds investments would be covered by the Exon-Florio National Security Test for
Foreign Investment and thus subject to the CFIUS for review.53 According to one
analyst, because most SWF transactions are non-controlling, involve non-voting
shares, and comprise less than a 10% stake, the current review process is not set up
to review SWF investments. However, in July 2007, Congress passed the Foreign
Investment Security Act of 2007 (P.L. 110-49), which among other things, enhanced
the review process for non-U.S. acquisitions and added critical infrastructure and
foreign government-controlled transactions to the factors for review.54
Europe
The response to SWFs in Europe has been largely divided into two camps:
countries that are considering heavier restrictions on SWF activity versus those that
would like to maintain open investment principles enhanced by additional SWF
transparency.
France and Germany fall primarily into the first camp. According to many,
Germany has taken the most aggressive stance against SWF investment. German
Chancellor Angela Merkel has stated, “with those sovereign funds we now have new
and completely unknown elements in circulation. One cannot simply react as if these
are completely normal funds of privately pooled capital.”55 Reportedly, Germany is
redrafting an investment law that would allow it to block takeovers by SWFs or other
large state-sponsored investment agencies.56 German Chancellor Merkel has
expressed particular concern that large Russian energy firms, such as Gazprom,
would attempt to purchase Germany’s private energy utilities.57
A similar response has been seen in France. Just prior to a Middle East trip in
early 2008, French President Nicolas Sarkozy expressed strong concerns regarding
52 CRS Report RL33388, The Committee on Foreign Investment in the United States
(CRIUS), by James K. Jackson.
53 CRS Report RL33312, The Exon-Florio National Security Test for Foreign Investment,
by James K. Jackson.
54 Steven Davidoff, “A Guide to Speed Dating with Sovereign Wealth Funds,” The New
York Times Dealbook, at [http://dealbook.blogs.nytimes.com/2008/01/15/a-guide-to-speed-
dating-with-sovereign-funds/?ref=business].
55 Carter Dougherty, “Europe Looks at Controls on State-Owned Investors,” International
Herald Tribune, July 13, 2007, at [http://www.iht.com/articles/2007/07/13/business/protect.
php].
56 Marcus Walker, “Germany Tinkers With Foreign-Takeovers Plan,” The Wall Street
Journal, January 14, 2008.
57 Ibid.

---

CRS-18
SWF investments in Europe, focusing specifically on the lack of reciprocity within
the home markets of many of the largest SWF holders. According to President
Sakozy, “I don’t accept that certain sovereign wealth funds can buy anything here and
our own capitalists can’t buy anything in their countries. I demand reciprocity before
we open Europe’s barriers.”58
In contrast, the United Kingdom has presented, arguably, a more nuanced
approach to SWFs. Alistair Darling, the U.K. Chancellor of the Exchequer, has said
that as long as SWFs do not threaten national security or pursue political purposes,
they should be free to invest as they please. “ I intend to make the point that we
welcome [SWF] investment, but I think crucially, people, companies, and sovereign
wealth funds have to act on a commercial basis.”59 A similar reception has been seen
in Switzerland. Phillip Hildebrand, Vice Chairman of the Swiss National Bank
(SNB) has stated, “the challenge [of SWFs] is to preclude an outcome where the
activities of SWFs trigger policy responses in mature markets that ultimately lead us
down the path of financial protectionism. A set of guidelines addressing the threat of
politically-driven investment decisions and resurgent state involvement in the global
economy represents the best currently available option to respond to the challenge of
SWFs.”60
The response from the European Commission, has been equally nuanced.
According to Charlie McCreevy, European Commissioner for Internal Market and
Services:
[W]e must not allow the discussion on Sovereign Wealth Funds to be used as an
excuse to raise unjustified barriers to investment and the free movement of
capital. Protectionism and domestic focus is the instinctive response of some
politicians.... But I do believe there are issues relating to transparency and
governance that we need to engage on with certain Sovereign Wealth Funds....
We need Sovereign Wealth Funds to be transparent in their operations,
preferably on the basis of an international code of best practice.61
On February 27, the European Commission (EC) adopted a Communication on
sovereign wealth funds (SWFs) that will be presented to the Spring European
Council on March 13-14, 2008. The report builds on earlier statements by EU
Internal Market Commissioner Charlie McGreevey for a coordinated European
response to SWF investment in Europe. The Communication proposes guidelines that
SWFs may wish to adopt to support good governance practices and increased
transparency of investment decisions
58 “Sarkozy attacks wealth funds on eve of MidEast trip,” Reuters, January 12, 2008, at
[http://www.reuters.com/article/oilRpt/idUSL1220023020080112].
59 Sumeet Desai, “Darling Says Sovereign Funds Need to Follow Rules,” Reuters, October
19, 2007, at [http://uk.reuters.com/article/businessNews/idUKWBT00778720071019].
60 “Sovereign wealth funds need rules-SNB’s Hildebrand,” Reuters, December 18, 2007.
61 Charlie McGreevey, European Commissioner for Internal Market and Services, “The
Importance of Open Markets,” Speech before Council of British Chambers of Commerce
in Continental Europe (COBCOE),London, J anuary 10, 2008, at
[http://www.edubourse.com/finance/actualites.php?actu=35306].

---

CRS-19
Multilateral
At the G7 Finance Ministers meeting in October 2007, ministers discussed
SWFs for the first time, noting that they are “increasingly important participants in
the international financial system and that our economies can benefit from openness
to SWF investment flows.” The final G7 communique for the meeting stated that the
IMF, World Bank, and the OECD should explore best practices for SWFs in key
areas such as institutional structure, risk management, transparency, and
accountability.62 Secretary of the Treasury Henry Paulson further elaborated on this
in his remarks to the International Monetary and Finance Committee of the IMF:
The United States believes a multilateral approach to SWFs that maintains open
investment policies is in the best interest of countries that have these funds, and
countries in which they invest. The IMF is uniquely positioned to identify best
practices for SWFs, building on the existing Guidelines for Foreign Exchange
Reserve Management. Best practices would provide multilateral guidance to new
funds on how to make sound decisions on how to structure themselves, mitigate
any potential systemic risk, and help demonstrate to critics that SWFs can be
constructive, responsible participants in the international financial system.
Recipient countries of SWF investment also have a responsibility to maintain
openness to investment and should work through the OECD to develop best
practices for inward government-controlled investment.63
To address concerns related to the lack of SWF transparency, some have called
for an international body, such as the IMF, to establish guidelines and monitor
countries’ compliance with transparency efforts. Proponents maintain that increased
transparency would limit the potential negative impact of greater SWF investment
by allowing financial markets to better observe SWF activity and exercise any
necessary market discipline. Edwin Truman, of the Peterson Institute for International
Economics, argued during November 2007 Senate Banking Committee hearings on
SWFs that
[t]he development of a set of best practices for sovereign wealth funds, and
similar understandings covering other cross-border government investments,
offers the most promising way to increase the accountability of these activities,
which are likely to increase in relative importance over the next decade. The
associated increase in transparency, which is a means to the end of greater
accountability, would help to reduce the mysteries and misunderstandings
surrounding these governmental activities. At the same time, the environment
for them would become more stable and predictable.64
62 Statement of G-7 Finance Ministers and Central Bank Governors, October 19, 2007, at
[http://treas.gov/press/releases/hp625.htm].
63 Statement by Henry M. Paulson, Jr. Secretary of the U.S. Treasury before the International
Monetary and Finance Committee, International Monetary Fund, October 20, 2007, at
[http://www.imf.org/external/am/2007/imfc/statement/eng/usa.pdf].
64 Edwin M. Truman, “Sovereign Wealth Fund Acquisitions and Other Foreign Government
Investments in the United States: Assessing the Economic and National Security
Implications,” Testimony before the Committee on Banking, Housing, and Urban Affairs
United States Senate, November 14, 2007. Prepared testimony is available at
[http://banking.senate.gov/_files/111407_Truman.pdf].

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CRS-20
While firm IMF guidelines for the operation of SWFs could be beneficial, none
of the countries concerned (i.e., the large SWF owners) are borrowers from the IMF
and therefore not subject to IMF conditionality. Thus, there are no direct means by
which the IMF could secure compliance with any proposed best practices. That said,
most SWF owners are members of the IMF and are formally committed to a stable
international monetary system. Efforts are underway to increase emerging market
countries’ vote and overall representation at the IMF.65 As part of these efforts,
countries may be willing to subject themselves to guidelines on SWF transparency.66
During the October 20 G7 finance ministers meeting, U.S. Treasury Secretary
Henry Paulson hosted an outreach dinner with top SWF managers from around the
world to begin the process of negotiating increased levels of SWF transparency.
There appears to be some positive reception from leading SWFs. According to Dr.
Tony Tan, Executive Director of Singapore’s GIC:
We believe there is a case for further disclosure on the part of sovereign wealth
funds in the interest of transparency. Such disclosure can include clarity on the
relationship between the funds and the respective governments, their investment
objectives and general strategies, and their internal governance and risk
management practices.... Any guidelines on sovereign wealth funds should
encourage them to operate according to commercial principles with a long- term
orientation, free from political motivations. Singapore will participate in
formulating a set of principles and best practices for sovereign wealth funds.67
In November 2007, the IMF convened the first of a proposed annual roundtable
of sovereign asset and reserve managers. At the meeting, delegates from 28 countries
discussed how best to address the policy and operational issues faced by managers
of growing reserves and sovereign assets.68 The IMF’s work agenda on SWFs was
approved at a meeting of the IMF Executive Board, which includes representatives
from both sovereign investors and recipients of sovereign wealth, on March 21. 2008.
While the IMF is working to establish guidelines for the management and
operations of sovereign wealth funds, the OECD has an ongoing work program to
establish a set of best practices for recipients of investments from SWFs.69 These
guidelines would draw on the OECD’s extensive work on the treatment of foreign
investment in OECD economies. OECD work will also draw on the OECD
65 CRS Report RL33626, International Monetary Fund: Reforming Country Representation,
by Martin A. Weiss.
66 For proposals on increasing SWF transparency, see Edwin M. Truman, “Sovereign Wealth
Funds: The Need for Greater Transparency and Accountability,” Peterson Institute for
International Economics, August 2007, at [http://iie.com/publications/pb/pb07-6.pdf].
67 Cited in Huw van Steenis and Huberty Lam, “Sovereign Wealth Funds and Chinese
Financials,” Morgan Stanley Research, January 15, 2008.
68 IMF Convenes First Annual Roundtable of Sovereign Asset and Reserve Managers, IMF
press release No. 07/267, November 16, 2007.
69 OECD Investment Newsletter, October 2007, Issue 5, at [http://www.oecd.org/dataoecd/
0/57/39534401.pdf].

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CRS-21
Guidelines for Corporate Governance of State Owned Enterprises (the SOE
Guidelines).70 The Guidelines are applicable to both SWFs and SOEs.
70 The OECD Guidelines on Corporate Governance of State-Owned Enterprises is available
at [http://www.oecd.org/document/33/0,3343,en_2649_37439_34046561_1_1_1_37439,00.
html].

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