Surprisingly, the IMF actually asked for help. Not just that either, they actually asked for help from countries that will be affected by their polices (the world is changing my friends, the world is changing). Reuters writes,

Singapore, along with Norway and Abu Dhabi, has been asked by the International Monetary Fund (IMF) to help set disclosure benchmarks for sovereign wealth funds, a local newspaper reported on Thursday, quoting Singapore's Minister Mentor Lee Kuan Yew.

"We've put up certain ideas. They're considering it. They are using us and Abu Dhabi and the Norwegians as benchmarks, to get us to set benchmarks for the rest," the Straits Times quoted Lee, who is also chairman of the Government of Singapore Investment Corp (GIC), as saying in Riyadh.

This is a step forward for the SWF regulatory policy creation. As I've always said, no sovereign wealth fund will accept any regulation unless it feels included in the creation of said regulation.

After thinking about this long and hard, I see no reason for global or even national regulations on sovereign wealth funds. This is not to say that I don't think these funds should be more transparent, it's saying there's no reason at all for global regulations on these funds. National regulations should follow the same policy as it applies to other foreign investments. I think the regulations in place now can adequately take care of any events that might occur. Just a side note, I do think the US needs to change the regulation of not needing to openly report your stake in a company unless you own more than 10% of said company. I think this should be much lower, maybe around 5%. The UK is 3%

Now, if I was a citizen of a state that had a SWF, you bet like hell I'll be asking for more transparency and openness as to where my money is going. But as a citizen of another country, can I really express concern about where another country's money is being spent, as long as it doesn't go to illegal activities or to encourage human rights abuses?

It's not just the existing regulations that negate any problems with Sovereign Wealth Funds; it's the entire idea of states. A SWF is responsible to the government. There's no debate about this. SWFs are government entities. While many governments don't have a day to day say in what goes on, they do direct the policy. If the head of state calls the head of the SWF, the head of the SWF will do what the head of state says. So the government is directly responsible for the actions of the Sovereign Wealth Fund.

Looking at all the scenarios, there's really nothing that can be done by a SWF that would dramatically affect the advanced economies in a negative way without significant repercussions to the state that has the SWF.

The effects on developing countries would, of course, be worse. But there's still a significant backwash that would occur on the SWF state.

Let's take the example of Temasek Holding and Indonesia. These two have been in odds over how much of the mobile market they actually control through subsidiaries. While Temasek is not admitting defeat yet, they basically are. So let's pretend that Temasek is so angry at this decision that they take the drastic step in pulling out of Indonesia. Indonesia companies make up a large portion of Temasek Holding (we are guesstimating around $20 billion but it might be up to $30 billion). If Temasek pulls out completely, it would cause a significant economic problem in Indonesia, but won't Indonesia retaliate by kicking out the rest of Singaporean companies? Why would Temasek even do this? They are in it to make money. They are fighting the ruling as all companies would fight the ruling. If they lose their appeal, they lose and will comply. They might pull out of the telecoms industry but won't pull out of other companies. They recently have taken a bigger stake in the 5^th largest bank.

I truly think that the biggest issue raised by SWF isn't the problem of these funds taking active control of companies, it's the fact they won't take control at all. Holman Jenkins in an opinion piece in the WSJ makes the case that these SWFs are hurting corporate efficiency. He writes,

"Worse, every incendiary article, news report and political speech about the "danger" posed by sovereign investment reinforces the instinct of such funds to be headline-shy, controversy-averse, and unwilling to join other shareholders in pushing noisily for change, even needed change. As if to underline the point in Citi's case, the latest sovereign infusions were matched to symbolic investments by Sandy Weill, who built the current Citigroup model, and Saudi Prince Alwaleed, both of whom have publicly derided the notion of a breakup."

The damage, in the minds of many SWFs, has already been done. By drawing attention to themselves which they have with the recent investments, they have brought the glare of the media, governments, and companies. This glare defeats the mystery behind SWF. While many investments made by these funds previously will never make it to light, all investments made in the coming years will be found out (Hopefully by us).

As a result of this, I think SWFs will work toward making the fund a little bit more transparent and more willing to speak about their investments or at the very least, acknowledge the investment. We have seen two events that will back this up; the first is Abu Dhabi Investment Authority hiring Burson-Marsteller, a PR firm to help manage their communication and media strategy. The second is at the World Economic Forum where several SWF heads are present and speaking openly. Reuters has a nice round up of quotes.