Currently, U.S. legislators have little recourse when it comes to overseeing the activities of sovereign wealth funds. In Congress, the Committee on Foreign Investment in the United States (CFIUS) takes responsibility for monitoring overseas acquisitions of 10% or more of a domestic company’s total ownership.
Critics argue that the 10% ownership threshold for reviewing these investments is inadequate — pointing out that investors who acquire smaller ownership shares can have a dramatic impact on a company, and on an economy at large. These concerns are inevitably magnified when the investor is a sovereign wealth fund because of the potential economic influence of an overseas government.
Sovereign wealth fund self-regulation
There is evidence that some sovereign wealth funds are listening to the world’s concerns regarding their transparency and accountability. Norway’s sovereign wealth fund operates under strict self-regulatory policies — which include making its holdings public, investing in a diversified portfolio that nearly duplicates index market exposure, and even limiting the maximum position it will take in an individual company. There is pressure on other countries to adopt the Norwegian standards of sovereign wealth fund accountability.
Stronger oversight
In 2007, Congress passed the Foreign Investment and National Security Act, or FINSA, in response to concerns regarding the national security implications of several major overseas investments. FINSA strengthens pre-existing laws for regulating major international investments, including the Exon-Florio Amendment of 1988, which mandates the activities of the Committee on Foreign Investment in the United States, or CFIUS.
Among other safeguards, FINSA seeks to overhaul CFIUS procedures for vetting direct international investments in the United States and broaden congressional oversight of CFIUS activities.
Critics argue that the 10% ownership threshold for reviewing these investments is inadequate — pointing out that investors who acquire smaller ownership shares can have a dramatic impact on a company, and on an economy at large. These concerns are inevitably magnified when the investor is a sovereign wealth fund because of the potential economic influence of an overseas government.
