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The combination of a commercial failure to exercise restraint and defective external oversight within the global investment banking community has offered an extraordinary commercial opportunity (and risk) to state-sponsored investment funds. Paradoxically, their capacity to take such large contrarian positions is linked to a deficit in direct and ongoing accountability. This shields some of the larger funds from short-term pressures. It also exacerbates perceptions that the funds may be used to further political objectives; perceptions, which, it must be pointed out at the outset, have no empirical basis. Nevertheless, the rising power of the asset class has sparked an acrimonious debate on whether the ‘New Mercantilism’ threatens legitimate national interests, or, more alarmingly, the capacity to maintain social cohesion in recipient countries.14 Thus, while greater transparency and accountability of Sovereign Wealth Fund investment activity may limit the extent of formal political control over investment decisions, it is unlikely, to address the geopolitical realities of what the Vice Chancellor of the Delaware Court of Chancery has, somewhat controversially, termed the rise of societies that ‘sink even deeper beneath the normative floor that the West sets for the ethically and socially responsible conduct of corporate affairs.’15 The policy challenge is neutralise this debate, ensuring that the normative benefits of greater transparency and accountability extend beyond the Sovereign Wealth Fund sector and are integrated with concomitant improvements in inward investment processes. To do otherwise preordains conflict at a time in which western leverage is severely compromised.

A The Rise of Sovereign Wealth Funds

Sovereign Wealth Funds have been in existence without contestation for a number of years. The source of seed capital can derive from one-off windfalls, such as the proceeds from privatisation. 16 Recurring foreign exchange receipts from natural resource exploitation provides a second revenue stream.17 A third derives from the investment of profits accruing from adroit entrepot trading. 18 They form an increasingly important component of overarching macro-economic strategies to take advantage of a spike in commodity prices. 19 In part, this can be traced to a determination in emerging economies to reduce vulnerability to sudden capital outflows or commodity price declines. Individual funds, if mandated to invest overseas, can also lower domestic demand or inflationary pressures by diverting

14 See R Gilson and C Milhaupt, ‘Sovereign Wealth Funds and Corporate Governance: A Minimalist Response to the New Mercantilism’ <http://ssrn.com/abstract=1095023> at 17 March 2008; for wider fear of changing economic power, see L Strine, ‘Towards Common Sense and Common Ground: Reflections on the Shared Interests if Managers and Labor in a More Rational System of Corporate Governance’ (2007) 33 Journal of Corporation Law 1.


See Strine, above n 14.

16 The Australian Future Fund, established in 2006, received seed capital from the proceeds of the federal government’s stake in Telstra, which was privatised the previous year.

17 Examples here include the Norwegian Government Pension Fund – Global and the Abu Dhabi Investment Authority.

18 The two Singaporean Sovereign Wealth Funds – the Government of Singapore Investment Corporation and Temasek Holdings – are paradigmatic examples.

19 Brazil, for example, has announced plans to set up its own Sovereign Wealth Fund, which will have an initial capitalisation of $10 billion, see M Moffett, ‘Brazil Joins Front Rank of New Economic Powers’, Wall Street Journal (New York), 13 May 2008, A1.


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