SWFs ISO Good Investments.

The injection of $7.5 billion worth of Arab government funds into troubled Citigroup, which boosted bank shares around the world last week, is a further sign that not all the scare stories about sovereign wealth funds (SWFs) should be believed. Many analysts have seen these massive new state-controlled funds, originating mainly in developing countries, as a new beast of prey, stalking the open global economy for weak victims. Such fears are often exaggerated and based on false premises.

The concern of some American and European policymakers is that as sovereign wealth funds gain traction, political rather than financial motivations will begin to guide international investment decisions and the internal affairs of domestic companies, provoking a protectionist backlash in targeted markets. The rapid growth of sovereign-controlled funds, such as the Abu Dhabi Investment Authority (ADIA), which bought into Citigroup, clashes with traditional economic orthodoxy. In market-based economies, the private sector is meant to own and control wealth, leaving the provision of public services to the state. With SWFs, however, some states now own enough wealth to move world markets.

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