Sovereign Wealth Funds

Mar 27, 2008

Featuring:

Dr. Simon Johnson 
Chief Economist
International Monetary Fund 

Click Here to view Dr. Simon's PDF.

Sovereign wealth funds (SWFs) have existed for more than 50 years, but only recently have they come to the attention of most Americans. It is estimated that these fund hold $2-3 trillion in assets-more than the amount held by hedge funds-and these assets could grow to $10 trillion in the next five years.

The majority of SWFs are owned by countries rich in oil or with export-driven economies. High oil prices, financial globalization, and sustained, large global imbalances have resulted in the rapid accumulation of foreign assets particularly by oil exporters and several Asian countries. As reserves have become more plentiful and have exceeded amounts needed for stability purposes, countries have increasingly placed resources with SWFs to boost returns on foreign assets.  

In the context of the current financial crisis, SWFs have acted as a stabilizing force by contributing about $41 billion of the $58 billion of capital injected into major financial institutions since November 2007. At the same time, this suggests that the role of SWFs going forward may be very different from the past, when, broadly speaking, they maintained a low profile and behaved mainly as portfolio investors, holding only small stakes in individual companies.

These recent trends are raising new questions about the transparency and accountability of SWFs, and about expanded role of governments in international markets and industries. For many nations facing the prospect of SWF investments, the notion of a nation potentially using its capital to pursue political, non-economic purposes is cause for concern.

To address these issues, the Mercatus Center at George Mason University is pleased to host Dr. Simon Johnson, Chief Economist of the IMF. The IMF has stepped up its work across a broad range of issues related to these state-owned funds, including their impact on global financial stability and capital flows. Dr. Johnson will discuss the implications of sovereign wealth funds, as well as answer specific questions and concerns, such as:

  • What are some common concerns about SWFs?
  • What are the economics behind a SWF?
  • What does the growth of SWFs mean for America and for the world?
  • What does the IMF think about the rapid growth of SWFs?
  • What are some possible best practices that SWFs should implement?