Sovereign Wealth Funds
Mary
Political Economy
January 10, 2010
Do Sovereign Wealth Funds Pose a Security Threat to Western States?
Sovereign wealth funds have been on the international economic scene since the middle of the 20th century. The Kuwait Investment Authority, for example, was created in 1953. (Lyons, p.25) However, until lately they had gone either unnoticed or ignored by the majority of political commentators. Several factors have brought them to the center of attention in economic and political debates in recent years. Firstly, the number of sovereign wealth funds has multiplied since 2000. As the IFSL Research affirms, “Around half of the top forty SWFs have been established since 2000.” (IFSL Research, p. 2) Secondly, the value of the assets controlled by these funds has dramatically augmented over the past decade and is expected by some to increase tenfold within the coming decade. This spike in the value of sovereign wealth funds was due in large part to a substantial inflow of capital from the West to oil-producing states as well as emerging economies. (Behrendt, p. 3) The oil producing countries have greatly benefited from the sharp increase in the price of oil over the last 15 years. Moreover, the greater global economic integration in part due to World Trade Organization agreements has opened the door to new opportunities for states looking to invest surplus capital. (Shediac, p.8) Thirdly, and perhaps most significantly, the global economic crisis has created an atmosphere of uncertainty especially among the Western nations regarding individual state security and the stability of the international economy more generally. A Morgan Stanley report from May 2007 was the spark that ignited the flame of contention in the Western world over whether or not sovereign wealth funds pose a security threat, be it political or economic, to individual states. The report asserted that sovereign wealth funds could be in control of up to 12 trillion dollars of assets as
Political Economy
January 10, 2010
Do Sovereign Wealth Funds Pose a Security Threat to Western States?
Sovereign wealth funds have been on the international economic scene since the middle of the 20th century. The Kuwait Investment Authority, for example, was created in 1953. (Lyons, p.25) However, until lately they had gone either unnoticed or ignored by the majority of political commentators. Several factors have brought them to the center of attention in economic and political debates in recent years. Firstly, the number of sovereign wealth funds has multiplied since 2000. As the IFSL Research affirms, “Around half of the top forty SWFs have been established since 2000.” (IFSL Research, p. 2) Secondly, the value of the assets controlled by these funds has dramatically augmented over the past decade and is expected by some to increase tenfold within the coming decade. This spike in the value of sovereign wealth funds was due in large part to a substantial inflow of capital from the West to oil-producing states as well as emerging economies. (Behrendt, p. 3) The oil producing countries have greatly benefited from the sharp increase in the price of oil over the last 15 years. Moreover, the greater global economic integration in part due to World Trade Organization agreements has opened the door to new opportunities for states looking to invest surplus capital. (Shediac, p.8) Thirdly, and perhaps most significantly, the global economic crisis has created an atmosphere of uncertainty especially among the Western nations regarding individual state security and the stability of the international economy more generally. A Morgan Stanley report from May 2007 was the spark that ignited the flame of contention in the Western world over whether or not sovereign wealth funds pose a security threat, be it political or economic, to individual states. The report asserted that sovereign wealth funds could be in control of up to 12 trillion dollars of assets as
Bibliography: Discourse.” Carnegie Middle East Center, Carnegie Papers No. 12, (October, 2008). Bernstein, Shai; Josh Lerner; Antoinette Schoar. “The Investment Strategies of Sovereign Wealth Funds.” Harvard Business School. (2009). Economist intelligence Unit. “Near East Meets Far East: The Rise of Gulf Investment in Asia.” (2007). Halligan, Liam. “Let’s not be dummies over sovereign wealth funds.” (February, 2008). Retrieved from the World Wide Web at: http://www.telegraph.co.uk/finance/comment/liamhalligan/2783767/Lets-not-be-dummies-over-sovereign-wealth-funds.html IFSL Research Kirshner, Jonathan. “Sovereign Wealth Funds and National Security: The Dog that Will Refuse to Bark.” Geopolitics, 14, 2009, pp Kuwait Financial Center (Markaz), “The Golden Portfolio: Reach of Sovereign Wealth Funds in GCC.” (March, 2008). Samba. “Tracking GCC Foreign Investments: How Strategies are Changing with Markets in Turmoil.” (December, 2008) Setser, Brad and Rachel Ziemba