Rapport d’information fait au nom de la Délégation pour l’Union européenne de l’Assemblée nationale (désormais nommée Commission chargée des affaires européennes), n° 963, 17 juin 2008, 66 p.

Les fonds souverains, révélateurs de nos propres faiblesses

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In the current context of the international financial crisis, it is interesting to note the way in which the national representation approaches the strategic and complex phenomenon of sovereign wealth funds. These new players in the international financial markets have asserted themselves over the last decade. The subprime crisis has been marked by an awareness of the importance of the role of sovereign wealth funds, i.e. public funds under the supervision of the State and whose long-term reserves are managed separately from the foreign exchange reserves of monetary authorities and public enterprises. For a long time ignored by the French public authorities, sovereign funds can be a source of financial power for the State or - on the contrary - a source of financial risk and instability. Indeed, today, sovereign funds have become more visible because they are less and less satisfied with a short or long-term stabilisation function, but are seeking high returns. This strategy is of concern to States that do not have such funds. The parliamentary reports by Mr Arthuis and Mr Garrigue contribute to the debate on these sovereign wealth funds by offering different but complementary approaches. After presenting them separately, a cross-reading will make it possible to draw a number of conclusions. Mr Arthuis’ information report takes up the work of two round tables on recent initiatives to promote transparency of sovereign wealth funds and outlines possible avenues for cooperation. Organised by the Senate’s Finance Committee, the two round tables held on 15 May 2008 had no academic ambition and have the merit of having brought together professionals from the main sectors concerned: bankers, lawyers, economists, consultants, and European Commission officials.

Formally, the report is in four parts followed by the full minutes of the round tables. The first part, which is an introduction, presents a reflection on sovereign wealth funds in the context of the crisis. The report expresses concern about SWFs as "saviours" of financial institutions short of equity capital on the one hand, and "predators" that may eventually acquire strategic companies or control energy supplies on the other. It is against this background that two round tables were organised. The first dealt with the investment strategy of sovereign wealth funds: do they aim at long-term profitability or sectoral control? The second round table focused on the acceptability and "accountability" of SWFs in the United States, Europe and France (in the sense that SWFs would be accountable to the community they represent, hence an investment strategy guided by profitability and by the requirement not to lose money due to bad investments).

The second part of the report provides some quantitative benchmarks on SWFs. At the beginning of 2008, they were in a range of between $2,500 and $3,500 billion. According to estimates made by Morgan Stanley in May 2007, these assets could amount to $8 trillion in 2011 and $12 trillion in 2015.

The third part of the report summarizes the main lessons learned from the round tables. Speakers in the first round table discussed the new role of SWFs in global capitalism and their investment strategies, while speakers in the second round table addressed the sensitive issue of how to deal with SWFs and the legal regime already applicable in Europe.

The fourth part of the report presents the policies pursued by the political authorities of the industrialized countries and the international financial institutions to promote a coherent framework for such investments. On this point, although the subprime crisis has raised awareness of the central role of sovereign wealth funds in capital movements and their varying levels of transparency, which has led the political authorities of industrialised countries to promote a coherent framework for such investments, from the point of view of both sovereign wealth funds and host countries, the initiatives taken are still insufficiently coordinated. In addition to the three main international initiatives, under the aegis of the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the European Commission, national approaches and discussions have also taken place, particularly in the United States, Germany and France.

For its part, the information report of the National Assembly’s delegation for the European Union considers that the size of the resources available to sovereign wealth funds will necessarily one day place them in the position of investors on major strategic issues. Consequently, the report raises the question of the establishment of a minimum safety net for the Member States of the European Union, but also the more important question of the capacity to attract the financial resources necessary to be present on long-term investments on a global scale. This is the general issue on which the report is based. The first part shows how sovereign wealth funds are part of the general liberalisation of capital movements but, at the same time, how they change the balance of power. The report underlines that the current accelerating phase of globalisation is marked by the emergence of numerous global financial players. And compared with other financial masses, the total amount of assets of sovereign wealth funds appears relatively modest. The report also emphasises that SWFs are one category of state investors among others and that concerns about the activity of SWFs are equally relevant to other investment tools available to states, particularly with regard to state-controlled companies (such as, in Russia, state-owned enterprises such as Gazprom or state-owned banks such as JSC Vneshtorgbank). The report points to two aspects of the development of SWFs that are likely to change the balance of power: their rapid growth and the opacity of their governance.

The size of these funds is attracting all the more attention as their governance and purposes are currently unclear. With regard to the opacity of their mode of governance and the question of their objectives and strategies, the report states that the establishment of sovereign wealth funds can aim to meet three objectives: a stabilisation of financial resources for States whose economies are very heavily dependent on the production of raw materials, whose prices can fluctuate sharply and whose resources are bound to run out in the more or less long term; the constitution of savings for future generations; the investment of foreign exchange reserves in assets that are riskier - but more diversified, longer-term and, above all, likely to yield higher profits - than traditional investments.

The report indicates that while some sovereign wealth funds are "transparent" (Norway, Alaska, Malaysia, Alberta, Azerbaijan...), secrecy largely or completely surrounds the activities of the other funds, the most numerous of which are "transparent" (United Arab Emirates, Kuwait, China, Qatar, Brunei, Taiwan...). Opacity in itself does not necessarily mean that the investments of these funds have motivations other than commercial, but it may legitimately give rise to fears, since they are actors directly dependent on governments. Some analysts consider that this opacity poses a risk to financial stability on global markets: a sudden decision by SWFs to withdraw from a market, for example, or even, since there is very little information about their operations, mere rumours about their decisions and behaviour, could lead to price volatility. The vast majority of SWFs appear to be unregulated financial actors and largely opaque as regards their institutional framework, operating rules and strategic objectives. The second part of the report deals with the various forms of intervention by sovereign wealth funds, which must lead European States and the European Union to genuinely question the way in which they operate. The rapporteur is therefore in favour of the latter adopting a proactive approach. In his view, the activity of sovereign wealth funds calls for four types of response: the promotion of greater transparency, action in favour of greater openness of investments in their countries of origin, consideration of a European framework for national arrangements for monitoring foreign investments and, lastly, the need to be aware of the challenge posed by long-term investments, to which sovereign wealth funds will inevitably turn but where Europe absolutely must remain present. These two parliamentary reports highlight a common observation: the growing importance of sovereign wealth funds. Their number in the world has doubled since 1999, and a growing number of countries are setting up or considering setting up sovereign wealth funds. Moreover, the assets managed by existing sovereign wealth funds have grown rapidly in recent years (+13% per year on average over the last ten years). Assets of SWFs are growing faster than those of other categories of investors.

Therefore, lessons can be learned at national, European and international level. Firstly, at the national level, while sovereign wealth funds seem to be an opportunity (in the case of France in particular), the main requirement for recipient countries is to preserve the capital and know-how of companies whose activity directly concerns the sovereignty and defence of the country. The report thus recommends that these investors be treated fairly, by preserving the sectors directly linked to national sovereignty.

Secondly, at European level, the novelty and importance of the phenomenon of sovereign wealth funds should be put into perspective. The European Union’s response to their development was common to all Member States, insofar as the EC Treaty guarantees the free movement of capital, both between Member States and between these States and third countries, without distinguishing between public and private investors. Europe is therefore "open" to sovereign wealth funds, even though Community law allows Member States to protect their "strategic" interests, a concept interpreted by the European Court of Justice in a restrictive sense. In accordance with Community principles, each Member State has been able to adopt its own legislation on international investment. With a view to establishing a common doctrine on sovereign wealth funds, the Ecofin Council, in February 2008, endorsed a recommendation from the European Commission, which considers that it is not appropriate to tighten up existing regulations and advocates the establishment of codes of conduct, freely adopted by sovereign wealth funds.

Finally, at the international level, although the development of sovereign wealth funds is not taking place in a legal vacuum, taking account of the specific characteristics of sovereign wealth funds is more a matter of "soft law" - good practices and codes of conduct - for which the greatest possible harmonisation must be sought at international level. The report adds that the parallelism of commitments on the part of the funds and the host countries of their investments must be accompanied by progress in the reciprocity of trade opening. To sum up, therefore, it is necessary to stick to current positive law, harmonise good practices and promote the reciprocal opening up of markets.

The current economic and financial crisis is not about to depoliticise the debate on sovereign wealth funds. A politicisation that is understandable but which is likely to divide rather than bring together the (sovereign) positions of States .


  • University of Paris I Panthéon-Sorbonne


Beligh Nabli, Les fonds souverains, révélateurs de nos propres faiblesses, February 2009, Concurrences N° 1-2009, Art. N° 23354

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