The Emergence of SWFs and the European Perspective

In the current highly volatile international financial system, sovereign wealth funds (SWFs) have emerged as significant global financial players. The emergence of these funds has drawn considerable attention from policy-makers, market players and scholars. There are two main reasons for this. First, SWF have been acknowledged to be the largest concentration of capital that the world has ever known. In 2008, SWFs exceeded the amount of US$ 5 trillion (UNCTAD, 2008). It is estimated that by 2015 they will reach the amount of US$ 12 trillion (Redicker and Crebo-Redicker, 2007). Secondly, the management of these funds has raised concern about the lack of transparency in the administration and investment strategies of these colossal funds. Strong sentiments of protectionism have been particularly expressed by some European countries. Much of these strong sentiments can be attributed to the unprecedented phenomenon that results from the accrual of large current accounts surpluses of some emerging and developing nations, who are keen to invest in the developed world. This remarkable shift of capital flows suggests the establishment of a new economic order. This chapter considers the emergence of SWFs as global financial players, the new regulations placed to lessen concerns around this phenomenon, the European approach towards SWFs and their impact on the global economy.