The rise in SWFs presents a competing investment channel for traditional FDI, according to consultant AT Kearney’s Foreign Direct Investment Confidence Index 2007.
SWFs have existed for decades but have recently come under scrutiny after a $60bn succession of high-profile investments in US and European banks suffering credit squeeze losses.
Negative sentiment towards SWFs has prompted speculation that governments may tighten inward investment regulation.
Australia was the first country to take official action, in March this year, to vet the activities of large government investment vehicles by publishing six principles that it said were intended to enhance transparency of Australia’s foreign investment screening regime.
In February, New York senator Chuck Schumer talked of possible legislation to ensure that SWF investments were not used for political purposes in the US, the biggest recipient of worldwide SWF investments.
However, US deputy trade representative John Veroneau warned that rushing Congressional action may have a chilling effect on FDI.
To discuss the issues that have been raised by the emergence of SWFs, the government of Luxembourg is hosting the country’s first Foreign Trade Conference on April 9 at Chateau de Bourglinster in Luxembourg.