State Capitalism: The Rise of Sovereign Wealth Funds

Alan Wood discusses some of the issues around the emergence of sovereign wealth funds, including Australia’s Future Fund:

An emerging theme in international discussion is the return of state capitalism. After decades of privatisation and the retreat of government from state ownership of enterprises, sovereign governments are becoming a major force in global asset markets…

Although most Australians don’t realise it, Peter Costello’s Future Fund, perhaps soon to become Kevin Rudd’s plaything, is a sovereign wealth fund. And in a world where the lack of transparency and accountability of sovereign wealth funds is a major concern, it is open to criticism…

Their assets are already larger than hedge funds ($US1 trillion to $US1.5 trillion) and private equity funds ($US700 billion to $US1.1 trillion).

And their assets are growing rapidly.

Standard Chartered estimates they could total $US13.4 trillion in a decade. They already hold over 1 per cent of the world’s total stock of equities, bonds and bank deposits and could hold 5 per cent or more of the global stock of financial assets in a decade.