I wrote an article Concerns about sovereign funds in Business Standard today where I worry about placing shares - and thus a say in corporate governance - in the hands of governments, particularly those which lack domestic political accountability. It is related to the problems of civil servants managing large reserves portfolios.
Here's a useful collection of readings on the subject of sovereign wealth funds (SWFs) [wikipedia], organised in chronological fashion. I was dimly aware of the problem for quite a while; Larry Summers, Jeffrey Garten and William Pesek woke me up. The recent fracas about China talking about selling US government bonds is an illuminating episode: it tell us something about what can happen with SWFs in the days to come, and it tells us that the reserves portfolio is not that different from a SWF when it comes to such strategic behaviour. On the issues of both the reserves portfolio and SWFs, I'm reminded about the difficulties of `quasi-nationalisation' that arise in the context of government-controlled pension funds getting invested in equities (see this paper, particularly page 34, for the index fund response to that issue).
- Tracking the Tectonic Shift in Foreign Reserves and SWFs by Stephen Jen of Morgan Stanley, March 16, 2007.
- Asia, Oil Nations Poke Holes in IMF Reserves by Michael R. Sesit, 9 April 2007.
- The world's most expensive club, in The Economist, 24 May 2007.
- How sovereign wealth funds are muscling in on global markets by Tony Tassell and Joanna Chung in FT, 24 May 2007.
- Taming sovereign wealth funds in two easy steps by Willem Buiter, 22 July 2007.
- China should beware of a backlash, in FT, 24 July 2007.
- State Capitalism, an edit in FT, 25 July 2007.
- China takes the bank, in The Economist, 26 July 2007.
- Big spenders stir protectionism by John Willman, FT, 29 July 2007.
- Funds that shake capitalist logic by Larry Summers, 29 July 2007.
- Sovereign Wealth Funds: The Need for Greater Transparency and Accountability by Edwin M. Truman, policy brief from Peterson Institute, 6 August 2007.
- Insight: China prepares for overseas investment by Jing Ulrich, 7 August 2007.
- We need rules for sovereign funds by Jeffrey Garten, in FT, 7 August 2007.
- Thatcherism is out as China vindicates Galbraith by William Pesek, 7 August 2007.
- The balance of financial terror, circa August 9, 2007 by Brad Setser, 9 August 2007.
- China should use reserves to sway the US, by Christina Soon, 9 August 2007.
- China threatens `nuclear option' of dollar sales in The Telegraph (UK), 10 August 2007.
- China, Reserve Accumulation, and (Further) Threats to Financial Stability, blog posting by Menzie Chinn, 12 August 2007.