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Sovereign Wealth Funds: A Critical Analysis

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Publication Date: March 2008

Publisher(s): Johns Hopkins University. School of Advanced International Studies

Author(s): Bryan Jonathan Balin

Topic: Banking and finance (International banking and finance)

Keywords: Abu Dhabi Investment Authority; sovereign wealth funds

Coverage: United States

Abstract:

In recent months, sovereign wealth funds have received much attention and criticism on the world stage. This paper analyzes these funds from a multidimensional perspective, showing their relative size, origins, history, strategies, and what regulatory oversight they have. Next, it examines why countries create sovereign wealth funds, and the criticisms of these funds. Thirdly, it projects the likely behavior of sovereign funds in the near term, explaining that they will create more liquidity and lower costs of capital in emerging equity markets and raise the demand for the services of existing investment managers. These funds will not, however, contribute to higher interest rates in U.S. treasuries or cause direct confrontations between the U.S., the UAE, Russia, and China over fund holdings. These funds may, on the other hand, increase the volatility of developed and emerging markets and create greater demand for openness to foreign direct investment among sovereign wealth fund-holding countries.

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