“Sovereign Wealth Funds” Are Beneficial and Safe for U.S. Economy

March 14, 2008

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“Sovereign Wealth Fund” investment, like all foreign investment, benefits the U.S. economy in myriad ways.  Accordingly, it should be treated like all foreign investment: welcomed, but also subject to laws and regulations that could block proposed deals that are found to pose risks to U.S. national security, finds a new Cato Institute report.

“Despite legitimate concerns about governments accumulating wealth and making investment decisions in the first place, as well as lingering doubts about the motivations behind those investments, changes in foreign investment policy are unnecessary,” writes Daniel Ikenson, associate director of Cato’s Center for Trade Policy Studies.

The study, titled “Nothing to Fear But Fearmongers Themselves: A Look at the Sovereign Wealth Fund Debate,” points out that despite recent growth in their number and size, at $3 trillion, aggregate SWF assets constitute only “a tiny sliver of the $190 trillion stock of global financial assets or the $62 trillion managed by private institutional investors.” Further, despite projected absolute growth in SWF assets, growth in overall global asset values will ensure that SWFs remain a very small percentage of the total.

Ikenson acknowledges that SWFs present unique concerns, but none that warrant categorical prohibitions, or new laws or regulations.

“Foreign investments should be vetted to ensure that any risks to national security posed by such investments are minimal and that proposed investments that do present legitimate national security risks are blocked or restructured. The interagency Committee on Foreign Investment in the United States (CFIUS), whose procedures for reviewing proposed foreign investments were just revamped by the Foreign Investment and National Security Act of 2007 (FINSA), has the tools and authority to do just that.  And where ownership of U.S. financial institutions is concerned, a host of banking laws exist to ensure that our financial system remains safe,” concludes the author.

This report can be found at: http://www.freetrade.org/pubs/FTBs/FTB-033.html