Oxford SWF Project

by Ashby Monk

What’s bothering US policymakers about SWFs? In recent meetings on the Hill, we asked and they responded. While most pointed to the standard fears — namely the potential for political criteria to influence investment decision-making — others offered more nuanced and difficult to resolve concerns. Two in particular warrant brief exposition here:

• First, the fear of SWFs ‘acting in concert’ was raised in several meetings. In short, this revolves around the idea that several SWFs could work together to amass a controlling interest in strategic US companies without any single SWF individually setting off an alarm.
• Also, many suggested that their concern about a specific SWF (e.g. China) was based in part on the underlying culture and laws of the sponsoring country. Indeed, while they agreed that governance, accountability, transparency etc. were all important, they remain convinced that, for example, a communist country with considerable political influence over industry would surely maintain similar sway over their SWF and its investment activities. In short, policy makers may be attributing characteristics of the home country with their SWF — no amount of governance, transparency, etc. will rid the SWF of that image.

What I find interesting about these two concerns is the following: they do not lend themselves to solutions for the current SWF crisis of legitimacy. First, proving that SWFs are working in concert to acheive political objectives is going to be tough; even more difficult than conclusively determining that a single SWF investment is political instead of commercial. Second, I have trouble conceiving of a set of organizational changes to a SWF that will resolve the second concern.

It will be very interesting to see what the IMF working group produces in October.