Regulating Strategic Sovereign Wealth

In an era of ascendant globalization, sovereign wealth funds were used by governments around the world—and in particular by governments with massive natural resource wealth or balance-of-trade surpluses—to invest widely in foreign markets. Sovereign wealth funds were products of the international economic order, adapted to live in a political and economic environment in which borders could be more easily crossed and foreign assets seemed abundant and easily acquired. After the Financial Crisis, and with the increasing nationalization of the 2010s, this environment began to change. Forces domestic and international spurred the development of new, “strategic” sovereign funds. No longer operating primarily in international markets, nor tightly linked to the international economic order, these sovereign funds are developments of a more desperate age. Rather than focusing on outward investment, these sovereign funds turn inward, focusing instead on domestic concerns and prioritizing domestic political legitimacy. While these strategic funds are designed to thrive in a more nationalized economic and political environment, the legal regimes of the sovereign funds’ home jurisdictions must also adapt to the domestic turn in sovereign funds. This article analyzes recent legal adaptations that attempt to manage a more mercantilist and nationalistic orientation from sovereign funds, and it outlines a framework for the legal innovations necessary to regulate and govern the funds within their home jurisdictions and minimize the risk of negative spillovers in other jurisdictions