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excess liquidity.20 Unlike traditional stabilisation funds, which tend to invest in easily convertible treasury bonds to ensure immediate access in the event of a sudden deterioration in critical export markets, the larger Sovereign Wealth Funds tend to adopt longer-term investment horizons. Moreover, there is an increasing propensity to diversify into a much broader range of equities and alternative asset classes, including, for example, private equity, real estate as well as the US film industry and British soccer.

Governmental asset holdings have now eclipsed hedge funds and private equity in funds under management. It is estimated that the total investment pool (without leverage) could reach as such as $12 trillion by 2015. The European Commission has recognised Sovereign Wealth Funds now form an essential transmission belt within the engine of financial globalisation.21 Informal polling at the 2008 World Economic Forum in Davos characterised Sovereign Wealth Funds as both global powers and global power brokers.22 The visibility has ensured that like private equity and hedge funds before it, the sector has attracted the attention of policymakers. Critically, this concern was evident even before the implosion of the securitisation market demonstrated serious flaws in the overarching regulatory systems of control.

The experience of large corporations in the industrialized world demonstrates that potential for error and abuse exists even in apparently highly rated and well-managed organisations. From a systemic perspective, transparency will facilitate the maintenance of openness to investment. What may have been tenable in a world where Sovereign Wealth Funds manage only several hundred billion dollars may not be tenable in a world where Sovereign

Wealth Funds manage several trillion dollars.


Policymakers in both London and Brussels remark candidly, if privately, that the core dilemma is how to engage a resurgent Beijing. The chair of the influential Treasury Select Committee, John McFaul, argues that ‘there is a paranoia, particularly in Washington, about China’.24 One of the most senior European regulators remarked to this researcher it was important ‘to be brutally frank. This is not about Singapore or Norway or even the Gulf Sovereign Wealth Funds; this is about how to deal with the power of China.’25 The rhetoric is much more pronounced in US discourse, in part

20 Australia’s new government, for example, has diverted part of an AUS $22 billion surplus arising (in part) from mineral exports into three separate infrastructure funds. It is unclear, however, whether these funds will be time-limited and the likely effect, if any, of liquidation timed to synchronise with the political calendar; see W Swan (Interview with ABC Radio National, 14 May 2008); W Swan (Speech delivered at National Press Club, Canberra, 14 May 2008).

21 Commission of the European Communities, A Common European Approach to Sovereign Wealth Funds (27 February 2008); see also OECD, above n 12 at 2.

22 M Useem, ‘Lessons Form Davos, One of Globalisation’s Best Classrooms’, Knowledge@Wharton, 6 February 2008 <http://knowledge.wharton.upenn.edu/article.cfm?articleid=1893> at 15 March 2008.

23 C Lowery, ‘Sovereign Wealth Funds and the International Financial System’ (Speech delivered at Asian Financial Crisis Revisited Conference, Federal Reserve Bank of San Francisco, San Francisco, 21 June 2007).

24 Interview, Glasgow, 7 April 2008. This is not to downplay concern in Europe about a resurgent Russia. See R Kagan, The Return of History (2008); E Luce, The New Cold War (2008); see also media coverage of the dispute over BP’s Russian subsidiary; C Levy and S Kishkovsky, ‘Fight Over TNK-BP Revives Worries About Kremlin’, International Herald Tribune (Paris), 17 June 2008, 13; R Pagnamenta, ‘Harassed TNK-BP Chief Quits Russia’, The Australian (Sydney), 26 July 2008, 39.


Interview with Charlie McCreevy, Brussels, 15 April 2008.


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