CYIL vol. 11 (2020)

CYIL 11 (2020)

SOVEREIGN WEALTH FUND

1. Introduction Sovereign wealth funds (SWFs) have proliferated in recent years 1 and have become significant actors in international finance, investment and trade. The SWF is a government entity. The sovereign nation state ‘owns’ the SWF. 2 In its legal form, the SWF may be a publicly-constituted instrument of the state (e.g., part of the Ministry of Economy) or a private company owned by the state. In its economic form, the SWF can be defined as a state-controlled investment vehicle – in other words, it is a state fund. 3 It represents sovereign investing in that it is a medium whereby the state may participate in international and foreign markets. 4 That is, SWFs have sovereign owners, but operate in private sectors. 5 Belonging to the state, the SWF politicizes international investment and trade. The operation of SWFs in international markets raises the question of whether there really is a distinction between commercially-minded investing and politically-minded investing. The corollary of this question is whether investments by private commercial operators are really wholly depoliticized. This is because, like SWFs, private investment entities may be the political investment tools of governments too. Private corporations may be close to their government and direct their overseas investments according to their government’s instructions. In this context, there is arguably no such thing as purely commercial, apolitical investment. Yet, being the ‘direct’ arm of the government in international markets, SWFs present a peculiarity. Public international law is based upon a tacit understanding that the direct arm of a foreign state does not intervene in or capture the national markets of other countries. This is a reflection of the principle of national sovereignty, which is firmly entrenched in international law. 6 The SWF, however, jeopardizes that principle. Indeed, that peculiarity has led to a political backlash in recipient “mature economies” – advanced economies – to SWFs. 7 The backlash has been based on the fear of a new notion or instrument of state capitalism at the expense of a purportedly global free market principles. 8 Arguably, this new version of state capitalism jeopardizes national security and the economic competitiveness of recipient countries. 9 SWFs are perceived as a dominantly political phenomenon embodying an aggressive form of state capitalism, rather than pure economic and commercial phenomena. 1 An updated list of sovereign wealth funds can be accessed at https://www.swfinstitute.org/fund-rankings/ sovereign-wealth-fund (accessed on 20 March 2020). 2 The International Monetary Fund, Global Financial Stability Report, October 2007. ROZANOV, Andrew Definitional Challenges of Dealing with Sovereign Wealth Funds , Asian Journal of International Law , I, 2011, p. 252. LYONS, Gerard, State capitalism: The rise of sovereign wealth funds , Law and Business Review of the Americas , 14(1), 2008, p. 6. 3 The International Monetary Fund (IMF) has defined SWFs as investment funds operated by governments. See International Monetary Fund, Sovereign Wealth Funds – A Work Agenda, IMF (29 February 2008). 4 CATA BACKER, Larry, The Norwegian Sovereign Wealth Fund: Between Private and Public , Georgetown Journal of International Law, 40(4), 2009, p. 1271. 5 LIPPINCOTT, Meg, Depoliticizing Sovereign Wealth Funds Through International Arbitration, Chicago Journal of International Law , vol. 13, no. 2, 2013, p. 651. 6 United Nations Charter, Article 2(1): The Organization is based on the principle of the sovereign equality of all its Members. 7 BEHRENDT, Sven, Sovereign Wealth Funds and the Santiago Principles, Carnegie Papers, number 22, May 2010, p. 1. 8 Ibid. 9 Ibid.

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