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Corporate Governance & Business Ethics Case Study

Case Title:

Sovereign Wealth Funds: Need for code of best practices?

Publication Year : 2010

Authors: D Arora and S Chaganty

Industry: General Business

Region: US

Case Code: GOV0055IRC

Teaching Note: Not Available

Structured Assignment: Not Available

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Oil exporting nations and Asian countries are flooding the western markets with investments via sovereign wealth funds (SWF). By a conservative estimate SWF's are likely to grow from $2-3 trillion in 2008 to $10 trillion by 2012 and $12 trillion by 2015. Besides being a new source of liquidity in the global markets, they are bringing about a structural shift in the global capital markets. With the sub-prime crisis, followed by the credit crunch and global recessionary fears, SWF have helped many western financial companies move out of the danger zone, but the US lawmakers and the European Union (EU) are suspicious of the deals. They feel that the SWF are looking for more than just a return on their investment. They fear political and economic motives behind these investments. Hence they want these funds to be transparent in their dealings and want them to follow strong disclosure and governance standards. In collaboration with the International Monetary Fund, US and EU are hoping to come out with a set of voluntary guidelines for the SWF to follow. Some of the funds have agreed to adopt voluntary best practices; however some funds like China and Middle East have expressed their reservations. The world is still divided over whether the funds need to be brought under a set of guidelines or the suspicions of the host countries are necessary.

Pedagogical Objectives:

    The case attempts to achieve the following pedagogical objectives:

  • The changing face of the global financial markets.
  • The role of sovereign wealth funds in the financial markets.
  • The challenges for SWF.
  • The need for regulation on SWF activities.

Keywords : Sovereign wealth fund (SWF), Foreign exchange, IMF (International Monetary Fund), Cross-border investments, Code of conduct, OECD (Organisation for Economic Co-operation and Development), Economic motives, Transparency, Lack of accountability, Code of best practices, State owned funds, International financial markets, Power brokers, Petro dollar investors, Asian economies

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