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Sovereign Wealth Funds - Concerns Along with SWFs

Several countries are keeping their economies away from SWFs because of the concern that some investments are increasingly being diverted for political objective to obtain power over strategically important assets. It has been observed that OPECs have been diverting large pool of funds in acquiring strategic assets and investing in important sectors like infrastructure, telecom, energy and media across developed countries. After much opposition from US Congress, Abu Dhabi's Investment Authority needed to withdraw looking at the ADIA Dubai Port after 9/11 terror attacks.

China Investment Corporation's $5 billion stake in Morgan Stanley and acquisition of Citigroup by Abu Dhabi Investment Authority for $7.5 billion was severely criticized after the recent subprime crisis.

Deficiency of transparency is still a major concern for nations which can be experiencing increasing sovereignfunding within their economies. SWFs are now being criticized for inadequate disclosures regarding size and supply of funds, investment objectives and their holding in private equity funds. While in the U.S., these concerns are addressed from the Exon-Florio Amendment to the Omnibus Trade and Competitiveness Act of 1988, European Union preferred to avoid SWF funding. Some experts opine that a real fear is unwarranted when we compare how big SWFs assets ($2 trillion) using the sized global investment funds assets ($20 trillion) and securities traded in dollars ($50 trillion).

IMG experimented with address this concern of transparency and governance by issuing the Santiago Principles in 2007, a couple of 24 voluntary principles to be sure transparency and sound governance by sovereign wealth funds (SWFs). However, not many SWFs are already following these principles seriously.