Developing Asia's New Sovereign Wealth Funds and Global Financial Stability

Abstract

Sovereign wealth funds (SWFs) and their investment activities have emerged as one of the most controversial issues in international finance. As their name implies, SWFs are characterized by two defining qualities - ownership and control by the government, and pursuit of high risk-adjusted returns as the central objective. Although the term SWF was coined only 3 years ago by Rozanov (2005), these funds have actually been around for quite some time. The oldest SWF, the Kuwait Investment Authority, goes all the way back to 1953.

A number of factors have come together to galvanize public interest in those financial institutions. For one, the proliferation of SWFs is a concrete symptom of the broader problem of global imbalances. For another, a string of highly publicized purchases of assets, such as the new People's Republic of China (PRC) SWF's May 2007 $3 billion investment in the Blackstone Group, a United States (US) private equity firm, have raised the profile of the SWFs as a whole. The objective of this brief is to bring some balance to the debate by examining SWFs from the viewpoint of developing Asia.