Despite the severity of the global economic crisis, many governments are still nervous about accepting investment by Arab Sovereign Wealth Funds (SWFs) despite their potential to provide urgently needed liquidity. Greater transparency about their holdings and investment strategies would help SWFs to overcome these concerns and to play a role in resolving the economic crisis, concludes a new policy outlook from the Carnegie Middle East Center.

Key conclusions:

  • SWFs have been hit hard by the financial crisis. In consequence, they now invest more cautiously and focus their attention on smaller scale investments that contribute to the development and diversification of their national economies.
     
  • SWFs should become more accountable to the public in their home countries. They are responsible for managing their country’s financial wealth and some have suffered substantial losses.
     
  • SWFs should aggressively implement the “Santiago Principles,” intended to increase transparency and accountability, agreed upon by the Sovereign Wealth Funds International Working Group in October 2008.
     
  • The international community, given the current turmoil in the global economy, should build the framework and institutions needed to more efficiently integrate SWFs into the global financial architecture and ensure openness in the process.

Sven Behrendt concludes:

“The uncertainty surrounding Arab SWFs has increased the political and regulatory risk premium for all sovereign foreign investors. It has also complicated efforts to address the global financial crisis. It is therefore in the individual interest of SWFs as well as in the interest of the global community at large to shift gears on the issues of transparency and disclosure.”