Raising Capital: The Role of Sovereign Wealth Funds

This reading, "Raising Capital: The Role of Sovereign Wealth Funds," describes the origins and functions of sovereign wealth funds (SWFs) and addresses the concerns that many observers have regarding these funds’ investment objectives and strategies. Paulson also looks at how SWFs are regulated and the policy issues that their activities create.

1. Define the following terms used in the reading:

   a. sovereign wealth fund
   b. commodity stabilization fund
   c. net exports
   d. systemically important
   e. transparency
   

2. What functions do sovereign wealth funds (SWFs) perform for their sponsoring governments?

   a. How did SWFs originate?
   b. What are the three largest SWFs? How large are these funds in terms of asset value?
   c. In what ways are SWFs similar to financial intermediaries such as mutual funds and pension funds?
   d. In what ways do they differ from these intermediaries?
   

3. What investments by SWFs have brought them media attention over the past couple of years? How successful have these investments been?

4. What concerns about SWFs have critics raised?

   a. Are critics’ concerns warranted?
   b. What efforts have U.S., IMF, and other regulators and policymakers made to deal with these issues?
   

5. What is Paulson’s long term appraisal regarding SWFs and the efficient flow of capital?

Source: “Raising Capital: The Role of Sovereign Wealth Funds.” Anna L. Paulson, Chicago Fed Letter, No. 258, Federal Reserve Bank of Chicago, January 2009.