Promoting responsible sovereign lending and borrowing: the role of sovereign wealth funds

Author:Georgios Pavlidis
Position:School of Law, Neapolis University, Pafos, Cyprus
Pages:443-452
SUMMARY

Purpose This paper aims to investigate the idea of building responsible borrowing and lending into sovereign wealth fund (SWF) decision-making. SWFs, which currently manage US$8 trillion in assets, are influential institutional investors, but their role in sovereign debt markets needs to be further explored. In this context, this paper aims to critically assess the linkages and... (see full summary)

 
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Promoting responsible sovereign
lending and borrowing: the role
of sovereign wealth funds
Georgios Pavlidis
School of Law, Neapolis University, Pafos, Cyprus
Abstract
Purpose This paper aims to investigate the idea of building responsible borrowing and lending into
sovereign wealth fund (SWF) decision-making. SWFs, which currently manage US$8 trillion in assets, are
inuential institutionalinvestors, but their role in sovereign debt marketsneeds to be further explored. In this
context, thispaper aims to critically assess the linkages and convergencesbetween the Santiago Principles on
SWF and the United Nations Conference on Trade and Development (UNCTAD) principles on responsible
sovereignlending and borrowing.
Design/methodology/approach This paper draws on legal scholarship, reports, policy papers and
other open-source data to explore the role of SWFs in sovereign lending, borrowing and debt
restructuring.
Findings Building responsibleborrowing and lending into SWF decision-making is feasibleand justied
on the grounds of both ethics and public duty. It is also justied in nancial termsbecause it would protect
SWFs from irresponsible lending and borrowing practices at the micro level while contributing to global
nancialstability at the macro level.
Originality/value This is the rst comprehensive study to juxtapose two important normative
processes,the Santiago Principles and the UNCTAD Principles.
Keywords Socially responsible investments, Debt restructuring, Sovereign wealth fund,
Sovereign debt, Santiago Principles, UNCTAD
Paper type Research paper
1. Sovereign wealth funds as investors in the sovereign debt markets
1.1 The rise of sovereign wealth funds
Since the establishment of the rst sovereign wealth fund (SWF) in Kuwait in the early
1950s, similar entities have grown in number, size and inuence, powered by the
accumulation of foreign assets in many countries mainly resource-rich, commodity-
exporting states (Saudi Arabia, Qatar, United Arab Emirates, Russia, Chile, Botswana,
etc.) and foreign reserve-rich states with surpluses, such as the Peoples Republic of
China. Several more countries are exploring proposals to establish SWFs to invest in
specic projects or categories of assets (Hamada et al., 2017;Keep et al., 2016). The
decision to establish such an entity is driven by economic imperatives, but to some
extent, SWFs are also proliferating as a fashion or fad (Chwieroth, 2014). Either way, the
trend seems to be lasting long, and in the last ten years alone (2008-2018), the value of
assets that SWFs hold under management has increased from US$2-3 trillion to US$7.9
trillion[1]. In addition to this nancial repower, SWFs have increased their impact on
nancial markets with potential leverage in their investment strategies, either directly or
indirectly, by placing investments with leveraged funds (Johnson, 2007). Overall, SWFs
have rmly established themselves as institutional investors and important players in
the international markets.
Promoting
responsible
sovereign
lending
443
Received24 November 2018
Revised31 March 2019
Accepted15 April 2019
Journalof Financial Regulation
andCompliance
Vol.27 No. 4, 2019
pp. 443-452
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-11-2018-0151
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm

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