Professor Bainbridge...on law, politics, religion, culture & food

Sovereign Wealth Funds

Brendan Geary comments:

In terms of the continued debate over transparency and intentions of SWFs, the real issue comes done to one of underlying perceptions and basic assumptions.  The perception of why SWFs are investing is one based upon economics reasons, as well as political motives; but the question must be asked:  Why does such a perception exist?  In many ways this multi-faceted perception is linked to the regime type that dominates the country from which an SWF originates.  In many cases of SWFs, the governments are authoritarian, and both the perceptions of financial and political risks emanate because investment intentions from authoritarian regimes are perceived not to be solely based upon acts of instrumental rationality.  This, however, has not necessarily been proven to be the case. 

The perception of SWFs being a non-rational investor emanates from the basic assumptions that these investment bodies are being administered by individuals who do not act along primary rationales of investing, and that an association between state-ownership and investing bodies may utilize motives based less on economics, and more upon politics.  Neither of these two assumptions has yet to be sufficiently proven as the default modus operandi for SWFs; however, the resulting perceptions of these assumptions have proliferated with the recent wave of SWF investment, especially amongst FDI host countries as in the US.  What remains to be seen is how this new cycle and direction of global investment plays out financially and politically.  Much of what happens, as argued above, will depend significantly upon the underlying assumptions and perceptions surrounding SWF investment, and the resulting state behaviors based upon these perceptions.