The Law of Sovereign Wealth Funds
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The Law of Sovereign Wealth Funds

Fabio Bassan

This book provides a definition and classification for Sovereign Wealth Funds (SWFs) and discusses their phenomenon within the legal context. It identifies the rules applicable to SWFs and focuses on the bilateral relationships between states. In eight extensive chapters, Fabio Bassan considers whether SWFs may enjoy immunity with respect to host state measures as well as protection in Bilateral Investment Treaties
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Chapter 3: Sovereign Wealth Funds’ Regulation

Fabio Bassan


The economic literature suggests various forms of SWF activity regulation. International organisations have tried to identify the most appropriate one, because neutral for the market. However, there are three underlying misunderstandings that should be removed to begin with. First, the proposal of a regulation for SWFs cannot avoid taking in consideration their qualification, and should be consistent with it. SWFs must be defined and then classified within basic categories. Thereafter, they can be regulated, where required. And the proposed regulation cannot be in conflict with the definition and classification suggested. While this assumption should be taken for granted, it is often ignored by scholars and analysts. Second, as we saw in Chapter 1, the traditional conflict of interest between states both regulating (domestically) and investing (abroad) operates here in a very original way, applying to home states, SWFs and host states. Two consequences originate from this assumption. First, regulating SWFs requests rules not only in host states but also in home states: stand alone (home, or host) state measures run the risk of being ineffective. Second, absent an adequate multilateral system, home and host state measures should be consistent and coordinated. Third, regulation is necessary where the market falls short. In the case of SWFs, market failure is still unproven – it might occur in the future. In spite of that, an SWF’s regulation is often justified by host states’ concerns that SWFs might make ‘political’ investments, try to acquire know-how, or aim at taking over, even indirectly, of companies working...

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