Sovereign Wealth Funds: Size, economic effects and policy reactions

The emergence of Sovereign Wealth Funds (SWFs) and some spectacular investments of these funds in recent years have caused widespread attention on international financial markets. Most SWFs are domiciled in Arabian countries, East Asia and Russia. Their low transparency led to concerns that SWFs could threat national security and the economic order of industrialised countries. This paper describes the growth and the investment strategy of SWFs, the impact of their investments on host and investing countries as well as policy reactions of selected countries. Several international organisations (European Union, OECD, the IMF together with the International Working Group of Sovereign Funds) have already undertaken initiatives that will help to improve the transparency and accountability of SWFs and to develop best practices for investing countries as well as for recipient countries. National policy reactions of several host countries, like the tightening of rules for cross-border investments in the United States and in Germany, were therefore rather counterproductive.