	Introduction

Sovereign Wealth Funds (SWFs) are investment funds owned and managed by national governments. Although their lack of transparency makes estimating SWF investment levels difficult, it is estimated that they currently manage between $1.9 and $2.9 trillion. This report provides background on SWFs, including what countries operate SWFs and the size of the SWF market, and discusses two broad areas of concern to Members of Congress and the international financial community:
governance and transparency-related issues, and possible non-commercial investment goals, including the potential use of government-controlled investment vehicles to attain global strategic and political goals. As noted previously, the recent growth of SWFs is a consequence of rapid growth in emerging market reserves driven by (1) the impact of rising oil prices for Middle Eastern economies and (2) large trade surpluses, net foreign direct investment flows, and high savings rates among Asian economies. Policy Issues for Congress

The magnitude of financial impact combined with the lack of transparency and possibly political investment motivations of non-commercial entities has sparked concern among some analysts and Members of Congress about the rapidly growing wealth of emerging market countries and how this wealth is being invested in the United States. Hearings on SWFs have been held in several congressional committees including the Senate Banking Committee, Senate Foreign Relations Committee, House Financial Services, House Foreign Affairs Committee, and the Joint Economic Committee. These concerns as applied to specific SWFs are mapped in Figure 3 . Minimal SWF transparency masks SWF investment activity and can obscure governance and risk-management problems within the funds. This can have distressing consequences for policy makers. Many U.S. policy makers are concerned that countries will use SWFs to support what one analyst has called "state capitalism," using government-controlled assets to secure strategic stakes around the world in areas such as telecommunications, energy resources, and financial services, among other sectors. On the other hand, many are concerned that countries may use their SWFs to gain access to other countries' natural resource industries or other politically sensitive sectors. To address concerns related to the lack of SWF transparency, some have called for an international body, such as the IMF, to establish guidelines and monitor countries' compliance with transparency efforts.
Sovereign wealth funds (SWFs) are investment funds owned and managed by national governments. Such funds currently manage between $1.9 and $2.9 trillion and are expected to grow to over $10 trillion by 2015. This is due to the rapid growth of commodity prices and large trade surpluses in several emerging market economies. Beginning in 2007, interest in SWFs increased as Asian and Middle Eastern SWFs, fueled by surging foreign exchange reserves, invested large sums of capital in U.S. and other Western companies.
Policy makers in the United States have raised two broad policy concerns about SWFs: (1) their lack of transparency and (2) their possible misuse for political or other non-commercial goals. Hearings have been held by several congressional committees including the House Financial Services Committee and the Senate Foreign Relations and Senate Banking Committees.
SWFs pose a complex challenge for policy makers. On one hand, SWFs are long-term investment vehicles looking beyond quarterly results and therefore serve as stable funding sources during financial turbulence. On the other hand, however, there are operational concerns stemming from government control (i.e., lack of transparency and possible non-commercial investment goals). Without transparency, it is difficult to attain a clear picture of SWF investment activity. A lack of SWF transparency can also obscure governance and risk-management problems within SWFs. Many are also concerned that countries will use SWFs to support what one analyst has called "state capitalism," using government-controlled assets to secure stakes around the world in strategic areas such as telecommunications, energy and mineral resources, and financial services, among other sectors.
In response to these concerns, many analysts and policy makers are evaluating the operations of existing SWFs and are looking to the international financial institutions such as the International Monetary Fund, World Bank, and the Organization for Economic Cooperation and Development to establish guidelines for SWF operations. All of these institutions are currently developing proposals that will be deliberated during 2008. This report will be updated as events warrant.