Columbia International Affairs Online: Policy Briefs

CIAO DATE: 06/2008

A Blueprint for Sovereign Wealth Fund Best Practices

Edwin M. Truman

April 2008

Peterson Institute for International Economics

Abstract

Over the past year, sovereign wealth funds (SWFs) have leapt from the back pages in business sections of financial newspapers to lead stories on the Internet. Defenders of SWFs argue that they are benign, long-term investors that provide needed capital transfusions to hard-pressed private financial institutions. At the same time, political controversy surrounds SWFs in many countries including their own. Moderate voices have called for agreement on a set of best practices for SWFs.

In response to prodding from moderate voices, the International Monetary Fund (IMF) has embarked on a dialogue to establish best practices for SWFs. The Organization for Economic Cooperation and Development (OECD) is engaged simultaneously in identifying best practices for countries that receive SWF investments.

In this policy brief I first provide some background on SWFs and then present a blueprint for SWF best practices. This blueprint is based on a scoreboard for the current practices of 44 SWFs. The blueprint in turn provides a basis for evaluating the results of the IMF-sponsored dialogue. I conclude this brief with a few observations on implementation.