Comment on “Are Asian Sovereign Wealth Funds Different?”


Siow Yue Chia, Singapore Institute of International Affairs, 2 Nassim Road, Singapore 258370. Email:

Dr Truman is a noted researcher on sovereign wealth funds (SWFs) and has contributed to the development of the Santiago Principles. These Principles, with their emphasis on more information, transparency, and accountability of SWFs, have demystified SWFs and helped dispel misperceptions. Since its introduction in 2008, there have been improvements in scores, including from Asian SWFs.

The global financial crisis of 2008–2009 saw a number of SWFs acting as “white knights” in the rescue of stressed Western financial institutions, thus helping to calm the international financial market. More recently, international concerns have shifted from SWFs to Western sovereign debt as potential destabilizers of the international financial system. With these developments the negative limelight on SWFs has diminished but could resurface.

I would like to focus my comments on two issues raised in Truman (2011). First, should SWFs be treated differently from other types of international investments? Second, should Asian SWFs be held to higher standards than those from other regions?

Regarding the first, I would argue that codes of conduct should be developed for all other forms of international investment, since misconduct and misperceptions affect public opinion, investment sentiment, and public policy. In the past decade, SWFs have become a prominent feature of the international financial landscape and have generated Western concerns regarding their objectives and modus operandi. Whatever their governance structure, SWFs traverse three controversial aspects in economic policy, namely, state capitalism, foreign investment protectionism, and the accumulation of foreign reserves by many non-Organisation for Economic Cooperation and Development (non-OECD) economies.

Of particular concern to Western host countries is that SWFs have political and economic agenda that might undermine them. State capitalism and non-Western-like political systems are standard suspects. I am mindful of the earlier concerns among developing countries over the “domination” of their economies and the “exploitation” of their natural resources by big Western multinational corporations (MNCs). Thankfully, sound empirical research and mostly favorable host country experiences have dispelled some of these concerns and misperceptions. Second, Western countries are also increasingly concerned on “national security grounds” over SWF purchases of strategic economic assets. Since national security is not clearly defined, SWFs would seem to have exacerbated financial protectionism in potential host countries, not unlike the resource nationalism of some non-OECD countries. Third, there is a concern that SWF activities would contribute to financial market turmoil and uncertainty. This has not been borne out in reality, and the timely injection of funds by some Asian SWFs into several stressed Western financial institutions during 2008–2009 had helped calm global financial markets. Fourth, regarding international investment conflicts, the issue has been long-standing, and efforts by the World Trade Organization and OECD have failed to reach any universally accepted code of conduct for home and host governments and for investors.

The core of Truman's (2011) paper is that Asian SWFs are different from other SWFs and should be held to higher standards for the following reasons. First, they are less likely to “fully embrace international norms and conventions of mature industrial economies.” What does Dr Truman mean by that statement? It calls for clarification. Second, the SWFs of Singapore and, to a lesser extent, China and Korea, invested in crisis-weakened Western financial institutions and could sell off these investments and contribute to financial volatility. I argue that when these SWFs divest, just as when they invested, it would be for financial and not political reasons. In any event, the amounts of these investments are very small compared to their total SWF assets, the size of global financial investments, and the sovereign debts in the Eurozone and the USA. Third, Asian SWFs are disproportionately funded out of foreign exchange reserves rather than out of the export proceeds of natural resources. Does the source of funds make Asian SWFs more suspect as investors? Behind this argument is the concern that Asian countries manipulated their exchange rates to achieve surpluses to fund their SWFs. Here, the extent of exchange rate “manipulation” among Asian countries is a matter of debate. Also, Singapore's Temasek Holdings is funded from the divestment of state-owned enterprises and investment returns, although the Government of Singapore Invest Corporation is funded out of reserves. Third, Big Money is distrusted, and some Asian SWFs are in the Big Money category, and there is concern about the role of government in the international economic and financial matters. Dr Truman should not generalize about Asian countries. While Singapore's two SWFs are large, Singapore has very little clout in international economic-financial or geopolitical affairs. In contrast, Singapore is host to investments from some of the largest MNCs and investment funds in the world and does not hold them in distrust.

It is not only in Asia's interest to promote sound governance among its financial institutions, including its SWFs, it is in the interest of the world to promote sound governance in financial institutions and financial markets.