Global Securitization Crisis and the Sovereign Wealth Funds

Peter O'Brien

    Research output: Contribution to journalArticlepeer-review

    Abstract

    State-backed asset management pools are pivotal for the provision of liquidity to minimise the solvency dilemma posed by the global financial crisis. Following tense negotiations brokered by the IMF, agreement has been reached on a set of Generally Accepted Principles and Practices for Sovereign Wealth Funds - the Santiago Principles. The principles set out the legal, institutional and macroeconomic strategies adopted by each subscribing fund. According to the co-chair of the International Working Group drafting committee, the "governance and accountability arrangements give considerable comfort especially in the area of the separation of operations of the sovereign wealth funds (SWFs) from its owner, and the investment policies and risk management together with the other things are intended to make it clear that SWFs act from a commercial motive and not other motives" (Murray, 2008). Although no formal surveillance mechanism is envisaged, Murray's counterpart, the Under Secretary at the Abu Dhabi Department of Finance, gave an explicit assurance that compliance could be verified (Al Suwadi, 2008). The Santiago Principles, while voluntary, do much to address a perceived accountability deficit. The regulation of SWFs and other sources of state-controlled capital form only one component of the investment process, however. Success in reducing political contestation can only be vouchsafed if clarification extends to foreign investment review processes in recipient countries. This paper examines how the changing nature of the GFC impacted on the dynamics of the regulatory process. First, the dimensions of the crisis itself are mapped. Second, the capacity and risks associated with expansion of state-controlled capital are examined and implications for regulator reform evaluated.
    Original languageEnglish
    Pages (from-to)271-282
    Number of pages12
    JournalRevue d'économie financière : revue trimestrielle de l'Association d'economie financière
    Volume2009
    Issue numberSpecial Issue 2009
    Publication statusPublished - 2009

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