Sovereign Wealth Funds and the Limits of Global Regulation

Sovereign wealth funds (SWFs) have become prominent financial actors in the global economy.[1] SWFs are state-owned investment vehicles funded by foreign exchange assets, recycling national surpluses for long-term financial returns.[2] SWFs now collectively manage over $13 trillion in assets.[3] However, this capital is highly concentrated as a few funds dominate the global landscape, including Norway’s Government Pension Fund Global, the Saudi Public Investment Fund, Abu Dhabi’s ADIA and Mubadala, Kuwait Investment Authority, Qatar Investment Authority, and GIC of Singapore.[4]

Historically, SWF capital entered global dealmaking indirectly through commitments to sponsor firms.[5] Now, a rising number of SWF assets are allocated to direct investments.[6] As SWFs shift from primarily conservative debt instruments to high-risk equity investments, fears that SWFs may use their economic power to pursue political goals has heightened.[7] SWFs benefit from access to government relationships without facing the same fundraising pressure as private funds.[8] Therefore, SWFs gain an advantage in sectors tied to national strategy, energy transition, and digital infrastructure.[9] As SWF transactions continue to permeate these sensitive industries, the need for consistent, the inadequacy of the current regulatory framework underscores the need for uniform, binding legal standards.

Each state has its own rules and screening procedures for SWF activity, creating inconsistencies in global regulation.[10] For example, the U.S. Committee on Foreign Investment in the United States (CFIUS) adopted a series of regulations regarding SWF activity in 2007.[11] “Under the general CFIUS process, any transaction that may result in a foreign entity’s control of a company engaged in interstate commerce in the United States is subject to a third-day review to discern the effects of the transaction on national security.”[12] If a transaction does raise security concerns, CFIUS can block it or enter a “mitigation agreement” with the parties, requiring that steps be taken to address those concerns.[13]

In addition, SWFs are not required to disclose their investment strategies or the value of their holdings.[14] While some funds, like those of Norway, New Zealand, Alaska, and Canada, demonstrate high levels of transparency in their financial accounting, the United Arab Emirates, Qatar, Kuwait, and China disclose minimal information about their SWF activities.[15]

Moreover, the international regulatory regime for SWFs is voluntary, not legally binding.[16] In 2008, the International Group of Sovereign Wealth Funds established the Santiago Principles, a framework to promote transparency, accountability, and commercial-based investments for SWFs.[17] While the Santiago Principles establish best practices, compliance relies on the willingness of the organization and the state that sponsors it.[18] Subsequently, a more robust mechanism is needed to hold SWFs accountable for politically-motivated investments.

The current system of inconsistent domestic screening procedures and voluntary international principles is insufficient for effective regulation of SWF activity. Mandatory disclosure of investment strategy and governance structure would help to eliminate concerns of politically-motivated investing. In addition, a legally binding international treaty could coordinate standards and promote enforcement, strengthening global regulation of SWF activity in light of states’ increasing national security concerns.

Sophia Lima is a staff member of Fordham International Law Journal Volume XLIX.

[1] See Jens Nystedt, A Market View of the Impact of Sovereign Wealth Funds on Global Financial Markets, in Econ. of Sovereign Wealth Funds 205, 205 (Udaibir S. Das, Adnan Mazarei & Han van der Hoorn eds., 2010).

[2] See John Cunningham, Keith Hallam & Steven Sha, Spreading the wealth: Sovereign funds step up their deal activity, White & Case: M&A Explorer (Dec. 15, 2025), https://mergers.whitecase.com/highlights/spreading-the-wealth-sovereign-funds-step-up-their-deal-activity.

[3] See id.

[4] See id.

[5] See id.

[6] See id.

[7] See Richard A. Epstein & Amanda M. Rose, The Regulation of Sovereign Wealth Funds: The Virtues of Going Slow, 76 U. Chi. L. Rev. 111­­­, 112 (2009); Press Release, U.S. Dep’t of the Treasury, Treasury Issues Request for Information on CFIUS Known Investor Program and Streamlining the Foreign Investment Review Process (Feb. 6, 2026), https://home.treasury.gov/news/press-releases/sb0389 (emphasizing efforts to maintain a longstanding commitment to open investment while protecting national security).

[8] Cunningham, supra note 2.

[9] See id.

[10] See Alvaro Cuervo-Cazurra, Anna Grosman & Geoffrey T. Wood, Cross-country variations in sovereign wealth funds’ transparency, J. Int. Bus. Pol’y 1,2 (2023).

[11] Epstein & Rose, supra note 7, at 118.

[12] Id.

[13] See id. at 119.

[14] See Anna L. Paulson, Raising Capital: The Role of Sovereign Wealth Funds, Chi. Fed Letter, No. 258, at 3 (Jan. 2009), https://www.chicagofed.org/publications/chicago-fed-letter/2009/january-258.

[15] See Zhao Feng, How Should Sovereign Wealth Funds Be Regulated?, 3 Brooklyn J. of Corp., Fin., & Com. L. 489–90 (2009).

[16] See Adam D. Dixon, Enhancing the Transparency Dialogue in the “Santiago Principles”, 37 Seattle U. L. Rev. 581, 584 (2014).

[17] See id. at 583.

[18] See id. at 584.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.