Abstract: Though operating in some form or another for over half a century, sovereign wealth funds (SWFs) did not become an object of general attention until the early part of the 21st century when a combination of the need of developed states for investment and the growing acceptability of state investment in private markets abroad made them both threatening and convenient. Assured by the framework of the Santiago Principles most states now view SWFs as a useful multi-purpose sovereign investment vehicle. Yet over the last decade or so, SWFs appear to have developed the potential to become an important instrument in good governance and development, especially for resource rich and capacity poor developing states. Following the lead of Chile, and with the patronage of IFIs, these SWFs have begun to serve objectives as and with development banks both within and beyond their home state. This paper considers the capacity of SWFs to serve ends beyond mere fund value maximization as envisioned in the Santiago Principles. It explores the value of SWFs as a means of enhancing governance capacity in weaker states, its utility in enhancing development objectives, the emerging landscape of joint ventures among SWFs for development and their intersections with emerging infrastructure and development banks, and their importance in enhancing the operationalization of emerging international business and human rights standards not only within their own organizations but through their investment activities. A brief assessment of these trends ends the paper. Lastly it develops a set of transformative changes in approaches to SWF instrumentality that SWFs, especially the smaller SWFs and those in developing states, might deploy in structuring and operating their SWFs within a globalized economic order. These strategies are meant to avoid the circular characteristics of current discussions grounded on premises of finance instrument silos and state based systems that no longer accord with the realities of, and fail to take advantage of the possibilities now offered through, global finance and can be grouped into the three transforming categories suggested in Section III: regionalization strategies; financial objectives strategies; governance strategies.

1. Sovereign Wealth Funds, Capacity
Building, Development, and
Governance
Larry Catá Backer (白 轲)
W. Richard and Mary Eshelman Faculty Scholar Professor of Law
and International Affairs
Pennsylvania State University
The Future of Sovereign Wealth Funds
Wake Forest Law Review 2017 Spring Symposium
March 24, 2017

2. Enter the Beast
• Benign neglect
• SWFs around in some form or another since the 1950s—at least
• Repackaging of ancient need for sovereigns (who used to be individuals or
families as well) to protect their (and thereafter the state’s) assets
• Panic
• Fear and lust in the wake of the economic turmoil of 2008
• From protection of wealth to projection of power abroad
• Accommodation: The Rise of the Model SWF
• Santiago Principles
• Defining the mechanism
• Socializing it within framework of global finance and financial markets
• Disciplinary mechanisms through rich host state checkpoint rules

3. The Beast Repurposed?
• Santiago Principles never contemplated one size fits all framework
• Lots of ”play in the joints”
• Focus on the needs of host state to protect their polities and economies
• Focus on the need of SWFs to make money around their own macro economic
agendas
• But even its broad constraints failed its purpose almost immediately
after its adoption.
• Enter resource rich developing states and IFIs
• SWFs expand the range of their utility
• But what does that mean for the project of naturalizing an idealized
SWF within global finance?

4. From Here to Eternity
• Ideological Baseline
• Emerging Realities on the
ground
• Reshaping the baseline?
• Going Forward?

5. Ideological Baseline
The ideal SWF:
--operates like a private fund
--objectives irrelevant (Because they go to
use of funds)
--transparency
--economic objectives paramount
--autonomy from state (subordinate political
agendas)
--open foreign markets subject to the usual
reservations for national security and
development
--human rights obligations reserved to states
or to the operating companies that made up
investment universe

6. Beast in its New Habitat: Private Power for
Public Aims
• National law and policy versus
international law and norms
• Macro-economic policy versus
advancing international legalization
projects through private market
mechanisms.
• Chinese versus Norway approaches
Pix Credit HERE

7. New Habitats 2: SWFs as development funds
• How do they tie in with
development funds?
• Do they lose their character as
commercial activity?
• Does it make a difference if fund
managers are not state official? Or
located within the home state?
• What counts as development
anyway? Must it ne internal or may
it be external for internal effects?
• Does it make a difference if foreign
investments are used to fund
domestic projects?

8. New Habitats 3: SWF joint venturing in projects
with other SWFs.
• Assume the character of development banks?
• Russia-Korea
• Private-Public joint ventures
• Credit Suisse, Qatar in Asset-Management Joint Venture
• Financing projects only or control
• Use of funds versus generation of funds issue
• Indirect financing trough controlled entities.
• Balance social projects with objectives of making money
• A good way of hiding subsidies?
• The underlying issue of regionalism in SWF function and action.

9. New Habitats 4:
SWFs as owners or controlling shareholders of SOEs, Real
Estate and other Enterprises
• Assume the character of a holding company?
• Turkish fund?
• Become the operational nexus point for
outbound national macro-economic agendas?
• China’s CIC?
• RE operations may trigger collateral obligations
or may be used strategically to avoid them
• What is an SWF that owns SOEs?
• Can an SOE “own” a SWF?
• What of the SOE that hedges its excess
revenues?

10. New Habitats 5: Mechanism for Governance
• SWFs and fiscal discipline: Resource rich/governance poor
• Chile the model
• Ghana; Mongolia, Angola
• SWFs and governance capacity building
• SWFs as monitors
• SWFs and anti-corruption efforts
• The role of IFIs and lending
• SWFs highest and best use is as as a technique and mechanism
• Method for monitoring performance

11. New Habitats: Reverse SWFs and Other
Outliers
• “Reverse SWFs”
• Palestine Fund: vehicle for receipt of foreign
contributions
• Income used to fund internal and external economic
and social projects
• Generalized: special purpose funds for foreign
aid providing greater control
• In name only SWFs
• Venezuela Funds: useful holding pens for funds
derived from extractives or other national
sources; income used to fund social programs
or stabilization funds; don’t lose their sovereign
character

12. Reshaping the Baseline: Key Questions?
• What is an SWF?
• Are Financial Objectives necessarily its highest and
best purpose?
• Investing or fiscal discipline?
• Internal or external
• What is development?
• Ownership or investment?
• Complex organizational structures change the
nature of the instrument and the mix of legal duties
and responsibilities of both SWF and state
• Where does sovereign immunity fit into all of this?
• Transparency
• Human rights: states, SWFs internal operations;
SWF investment decisions

13. Emerging Strategies
• A. Regionalization Strategies.
• 1. Real Estate and Operational Obligations.
• 2. SWF Joint Ventures and Markets for Sovereign Debt.
• 3. Joint Ventures suggest the Possibilities of Regionalization.
• B. Financial Objectives Strategies.
• 1. Definitions beyond narrow aping of private funds but with legal
consequences for immunity, etc.
• 2. Development Strategies and Financial Objectives.
• C. Governance Strategies.
• 1. The Issue of Corporate Social Responsibility and Human Rights.
• 2. Governmental functions and global economic activity.

14. Beastly Transformations: Approaches
The African Example
• The regionalization strategies are perhaps the most important element in
enhancing the effectiveness, power and viability of African SWFs as macro-
financial and governance instruments:
• 1. Create a regional working group, a regional forum, of African SWFs.
• 2. Insist that IFIs, and especially the World Bank and International Monetary Fund,
develop facilities to provide technical assistance to African SWFs on a regional basis.
• 3. Focus on regional intra-SWF investment and development projects.
• 4. Strengthen and increase participation in non-regional multi-SWF projects.
• If regionalization is essential to the enhancement of the success of African
SWFs, macro-financial strategies build on regionalism, and expand them.
• 5. Refocus SWF objectives to enhance the value of specialization and to target
coherence with the portfolios of finance and development ministries.
• 6. Reconsider the approach to stabilization and development models for SWFs,
especially were governance controls are weaker than they could be or in resource rich
states.
• The governance strategies as well are a necessary element to creating
institutionally strong African SWFs well capable of attaining the regional and
macro-financial strategies suggested.
• 7. Effect greater transparency.
• 8. Detach SWF operations from governmental discretionary decision-making.
• 9. Insist on changes to the way in which states with SWFs engage with IFIs to enhance
rather than to continue obstacles to better state performance.

15. Conclusion
• SWFs have already started moving well beyond their
idealized form, established within the parameters of the
Santiago Principles.
• SWFs now advance the political and economic projects of
states, they serve to strengthen governance, they are the
focal point for the normalization of global human rights in
economic activities projects, and they also serve to
advance the development goals of states.
• The old issues of the commercial character of these
mechanisms, and of their effects of the financial markets
and ownership structures of rich home states remains
important, but may no longer be the central element
pushing the development of SWFs. Law and regulatory
structures lag far behind the realities that are taking shape
on the ground.
• The public-private divide, the constraining structures of
national principles of taxation and sovereign immunity are
now ripe for contestation and change.
• But on what basis? That remains very much to be seen.
This paper has sought to provide a glimpse both at the
changes in practice and the possibilities they raise for
future conduct of SWFs.
• As to the future; we will know soon enough.

16. Thanks!
• Conference Draft may be
accessed HERE
• Author may be contacted
here: lcb911@gmail.com