Hank Paulson, Larry Summers Concerned as Sovereign Funds Eye U.S. Assets

There is an interesting problem for the booming world of Sovereign Wealth Funds. These funds—controlled by national governments and funded by booming trade and petro-dollar surpluses—have a lot of dollars. They’ll want to spend those dollars before the greenback falls even further.

But that may not be as easy as you think, and not because there’s only so many assets you can spend US$200 billion on (the size of China’s state-run fund). The trouble is, policy makers in the US and Western Europe are just now realising that Sovereign Wealth Funds mean that foreign governments can quite legally acquire large and controlling interests in key companies or key industries.

Is that a bad thing? It depends on who you ask. Hank Paulson thinks it can be good, as long as Sovereign Wealth Funds behave the way he would like them too. He urged the International Monetary Fund to develop “best practices” for governing the investments of SWFs that, “demonstrate to critics that SWFs can be constructive, responsible participants in the international financial system.”

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