Regulating Sovereign Wealth Funds: When States Become Entrepreneurs

The rise of sovereign wealth funds and other forms of state-owned investments challenges the traditional role of the State and has generated unease at the global financial system. Are sovereign wealth funds motivated by purely commercial considerations? Could they be used to advance political interests? How should they be regulated? Most of the scholarship on the subject and the initiatives to regulate them advance the idea that the adequate behaviour for a state-owned fund is to act just as a private investor would. The 'privatisation' (understood as having the State behave like a private investor) of this type of investor is a way to deal with the practical consequences of their operation and also stabilise the standard theoretical conceptions on the market and the state. Although some 'privatisation' can be helpful, I propose to examine some of the consequences of looking at sovereign wealth funds solely through the lens of private law and private interest, in order to highlight possible pitfalls of this approach. In particular, suspicion about sovereign wealth funds has polarised the debate on their motivations: they are seen through a binary code of the good 'commercially-based investment strategies' or the bad 'politically-driven' moves. This paper presents a more nuanced perspective on the non-commercially based considerations of sovereign wealth funds, in particular those considerations related to socio-economic development. Moreover, it advances the idea that the problem of governance of state-owned funds can be seen both from an external perspective-concerning the relation between the fund and the companies (or countries) receiving its resources-and from an internal perspective-concerning the relation between the fund and its constituents, such as the citizens of the investor state. While 'privatization' might provide good answers to deal with external governance, it is insufficient to tackle internal governance issues.