Table of Contents

Research Handbook on Sovereign Wealth Funds and International Investment Law

Research Handbook on Sovereign Wealth Funds and International Investment Law

Edited by Fabio Bassan

Research on the role of sovereign investments in a time of crisis is still unsatisfactory. This Research Handbook illustrates the state of the art of the legal investigation on sovereign investments, filling necessary gaps in previous research. Current focus is based on investment flows and trends, grounded in economic scenarios and objectives. Conversely, investigations from a legal standpoint are still few, namely disregarding the host states’ concerns about sovereign investments goals and tools. Hence, most of the many relevant drivers that affect current sovereign investments, be they FDI or portfolio investments, remain unexplained. This book investigates the juridical foundation of sovereign investments and extends our frontier of understanding.

Chapter 1: SWFs and State investments: A preliminary general overview

Massimiliano Castelli and Fabio Scacciavillani

Subjects: law - academic, finance and banking law, international investment law, public international law

Abstract

Historically the role and the influence of public and private entities in the economy have oscillated like an erratic pendulum. Governments interfered typically through state-owned enterprises or industrial policy, but SWFs represent a novelty because, although owned by a public body, they behave mostly like private financial entities. First of all this chapter explains which institutions can be considered SWFs and subsequently will focus on the macro trend driving to their ascent, especially the shift of emerging economies from world’s debtors to world’s creditors since the end of the 20th century. The emergence of SWFs is a global phenomenon: nearly 50 nations currently have an institution classifiable as an SWF. While originally the SWFs were created to manage the revenues from commodities exports, oil in particular, today the majority manage part of the current account surplus of well-diversified economies, e.g. in Singapore, South Korea, China, Ireland. At end 2013 SWFs managed assets estimated at USD 6.1 trillion. The 11 SWFs with assets under management (AUM) larger than USD 100 billion account for nearly 80 per cent of the total. The largest SWF is the Government Pension Fund of Norway (GPFN) with nearly USD 900 billion. ADIA, the Chinese Investment Corporation (CIC) and the Chinese State Administration of Foreign Exchange (SAFE), in charge of managing part of the Chinese FX reserves, manage assets in excess of USD 500 billion. With the expansion of their role and their financial muscle, SWFs have adopted increasingly sophisticated investment strategies and this evolution is likely to continue in the future. Also their mandates have become more complex ranging from social development funds more focused on tackling domestic problems to savings funds primarily entrusted with the task of transferring wealth to future generations. The chapter concludes with a discussion on what we can expect in the future in regard to the management of sovereign wealth and how fast the accumulation of assets is likely to grow.