'vereipn Wealth The Role of State Capital in the New Financial Order Editors Renee A Fry fI W arwick J I Justin O'Brien Imperial College Pres S vereign Wealth The Role of State Capital in the New Financial Order P658.9781848164314-tp.indd 1 4/8/11 2:25 PM S vereign Wealth The Role of State Capital in the New Financial Order Editors Renée A Fry & Warwick J McKibbin Australian National University, Australia Justin O’Brien The University of New South Wales, Australia Imperial College Press ICP P658.9781848164314-tp.indd 2 4/8/11 2:25 PM This page is intentionally left blank Published by Imperial College Press 57 Shelton Street Covent Garden London WC2H 9HE Distributed by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE Library of Congress Cataloging-in-Publication Data Sovereign wealth : the role of state capital in the new financial order / edited by Renée A. Fry, Warwick J. McKibbin, & Justin O'Brien. p. cm. Includes bibliographical references and index. ISBN-13: 978-1-84816-431-4 ISBN-10: 1-84816-431-9 1. Sovereign wealth funds. 2. Investments, Foreign. I. Fry, Renée. II. McKibbin, Warwick J., 1957– III. O'Brien, Justin (Peter Justin) HJ3801.S69 2011 332.67'312--dc22 2011016219 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. Copyright © 2011 by Imperial College Press All rights reserved. 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Agnes - Sovereign Health.pmd 1 4/26/2011, 11:16 AM April19,2011 18:16 9inx6in SovereignWealth:TheRoleofStateCapitalInTheNewFinancialOrder b1097-fm Contents Preface vii ListofContributors ix Introduction SovereignWealthFundsinanEvolvingGlobalFinancialSystem 1 RenéeFry,WarwickMcKibbinandJustinO’Brien Section1: StructureandImpactsontheGlobalEconomy 15 Chapter1: WhatisaSovereignWealthFund? 17 StephenGrenville Chapter2: SovereignWealthFundsandGlobalCapitalFlows:A MacroeconomicPerspective 21 JulieKozack,DougLaxtonandKrishnaSrinivasan Chapter3: APortfolioAnalysisofSovereignWealthFunds 43 ChristopherBalding Chapter4: TheImplicationsofSovereignWealthFundInvestment onCapitalMarkets:ABottom-UpView 71 DavidG.Fernandez Section2: RegulationandPublicPolicyIssues 93 Chapter5: ThePoliticalEconomyofSovereign WealthFunds 95 AvinishPersaud Chapter6: OpenCapitalMarketsandSovereignWealthFunds,Pension Funds,andState-OwnedEnterprises 105 AdrianBlundell-WignallandGertWehinger v April19,2011 18:16 9inx6in SovereignWealth:TheRoleofStateCapitalInTheNewFinancialOrder b1097-fm vi Contents Chapter7: NegotiatingaVoluntaryCode 147 DavidMurray Section3: LegalImplications 153 Chapter8: MappingtheTrajectoryoftheRegulatoryDebate:Securing theNationalInterestorJustifyingProtectionism? 155 JustinO’Brien Chapter9: AustralianRegulationofInvestmentsbySovereignWealth FundsandState-OwnedEnterprises 171 GregGoldingandRachaelBassil Conclusion SovereignWealthFunds:WhatHaveWeLearned? 189 DavidVines Index 201 April19,2011 18:16 9inx6in SovereignWealth:TheRoleofStateCapitalInTheNewFinancialOrder b1097-fm Preface ThisvolumearoseoutofaconferenceheldinSydneyonSovereignWealthFunds inanEvolvingGlobalFinancialSystemhostedbytheCentreforAppliedMacroe- conomics at theAustralian National University and the Lowy Institute for Inter- national Policy on September 24–25, 2008. In preparing for this conference we noted that there was a lack of rigorous research that has been done on the topic of sovereign wealth funds. Hence this volume was created to fill this gap, partly reflectingthecontentofthatconference,alongwithsomeadditionalmaterial.The timingofthisconferencewasaptgiventhatitcorrespondedwithoneoftheworst weeksoffinancialmarketcrisisthattheworldhasexperienced.Theviewofandthe potentialroleforsovereignwealthfundsintheglobaleconomyquicklychangedin theresultingfinancialmarketturmoil.Thisvolumealsotriestoreflectsomeofthis morecurrentdebate.Wearegratefultotheauthorsofthepapersinthevolumewho wereabletoprovideuswithabalancedandthoughtfulanalysisanddiscussionof sovereignwealthfunds,andwhohavebeenenthusiasticinsupportingtheideaof thisvolume.WealsothankNicoleMiesforsupportinproducingthemanuscript. FryandMcKibbinacknowledgefinancialsupportforthisprojectunderAustralian ResearchCouncilGrantDP0664024.O’Brienacknowledgesthefinancialsupport oftheAustralianResearchCouncilunderLP0884046. R.FryandW.McKibbin,Canberra J.O’Brien,Sydney June2010 vii This page is intentionally left blank April19,2011 18:16 9inx6in SovereignWealth:TheRoleofStateCapitalInTheNewFinancialOrder b1097-fm List of Contributors ChristopherBalding,PekingUniversity RachaelBassil,MallesonsStephenJaques AdrianBlundell-Wignall,OECD DavidGFernandez,J.P.Morgan RenéeFry,AustralianNationalUniversity GregGolding,MallesonsStephenJaques StephenGrenville,LowyInstituteforInternationalPolicy JulieKozack,InternationalMonetaryFund DougLaxton,InternationalMonetaryFund WarwickMcKibbin,AustralianNationalUniversity&LowyInstitute forInternationalPolicy DavidMurrayAO,TheFutureFundBoardofGuardians andtheInternationalForumofSovereignWealthFunds JustinO’Brien,UniversityofNewSouthWales,Sydney AvinashPersaud,IntelligenceCapital KrishnaSrinivasan,InternationalMonetaryFund DavidVines,UniversityofOxford GertWehinger,OECD ix