This is the accessible text file for GAO report number GAO-08-946
entitled 'Sovereign Wealth Funds: Publicly Available Data on Sizes and
Investments for Some Funds Are Limited' which was released on October
6, 2008.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to the Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
United States Government Accountability Office:
GAO:
September 2008:
Sovereign Wealth Funds:
Publicly Available Data on Sizes and Investments for Some Funds Are
Limited:
Sovereign Wealth Funds Data:
GAO-08-946:
GAO Highlights:
Highlights of GAO-08-946, a report to the Committee on Banking,
Housing, and Urban Affairs, U.S. Senate.
Why GAO Did This Study:
Sovereign wealth funds (SWF) are government-controlled funds that seek
to invest in other countries. With new funds being created and many
growing rapidly, some see these funds providing valuable capital to
world markets, but others are concerned that the funds are not
transparent and could be used to further national goals and potentially
harm the countries where they invest.
GAO plans to issue a series of reports on various aspects of SWFs. This
first report analyzed (1) the availability of publicly reported data
from SWFs and others on their sizes and holdings internationally, and
(2) the availability of publicly reported data from the U.S. government
and other sources on SWFs’ U.S. investments. GAO reviewed foreign
government disclosures, Department of the Treasury (Treasury) and
Department of Commerce (Commerce) reporting, and private researcher
data to identify SWFs and their activities. GAO also analyzed
information from international organizations and securities filings.
Treasury and Commerce commented that GAO’s report provides timely and
useful contributions to the SWF debate; SEC noted that U.S. securities
requirements apply to all large investors, including SWFs.
Future GAO reports will address laws affecting SWF investments, SWF
governance practices, and the potential impact of SWFs and U.S. options
for addressing them.
What GAO Found:
Limited information is publicly available from official government
sources for some SWFs. While some have existed for decades, 28 of the
48 SWFs that GAO identified have been created since 2000, primarily in
countries whose foreign exchange reserves are growing through oil
revenues or trade export surpluses. GAO analysis showed that about 60
percent of these 48 SWFs publicly disclosed information about the size
of their assets since the beginning of 2007, but only about 4 funds
published detailed information about all their investments—and some
countries specifically prohibit any disclosure of their SWF activities.
Although the International Monetary Fund (IMF) currently collects data
on countries’ international financial flows, GAO found that only 13
countries separately reported their SWF holdings in public IMF
documents. IMF plans to issue new reporting guidance in 2009 that asks
countries to voluntarily report the size of their SWF holdings in their
international statistics. While this could increase the transparency of
SWFs, its success depends on the extent to which countries participate.
In the absence of official national or international public reporting,
much of the available information about the value of holdings for many
SWFs is from estimates by private researchers who project funds sizes
by adjusting any reported amounts to reflect likely reserve growth and
asset market returns. For the funds GAO identified, officially reported
data and researcher estimates indicated that the size of these 48
funds’ total assets was from $2.7 trillion to $3.2 trillion. Some
researchers expect these assets to continue to grow significantly.
U.S. government agencies and others collect and publicly report
information on foreign investments in the United States, but these
sources have limitations and the overall level of U.S. investments by
SWFs cannot be specially identified. From surveys of U.S. financial
institutions and others, Treasury and Commerce reported that foreign
investors, including governments, private entities, and individuals,
owned over $20 trillion of U.S. assets in 2007, but the amounts held by
SWFs cannot be specifically identified from the reported data because
either the agencies do not obtain specific investor identities or the
agencies are precluded from disclosing individual investor information.
GAO found that as many as 16 of the 48 SWFs reported some information
on their U. S. investments. One reported all U.S. holdings, but others
only identified a few specific investments or indicated that some of
their total assets were invested in the United States. Some SWF
investments can be identified in U.S. securities filings, under a
requirement for disclosure of investments that result in aggregate
beneficial ownership of greater than 5 percent of a voting class of
certain equity securities. At least 8 SWFs have disclosed such
investments since 1990. GAO analysis of a private financial research
database identified SWF investments in U.S. companies totaling over $43
billion from January 2007 through June 2008, including SWF investments
in U.S. financial institutions needing capital as a result of the 2007
subprime mortgage crisis. Additional U.S. reporting requirements would
yield additional information for monitoring the U.S. activities of
SWFs, although some U.S. officials have expressed concerns that they
could also increase compliance costs for U.S. financial institutions
and agencies and could potentially discourage SWFs from making
investments in U.S. assets.
To view the full product, including scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-946]. For more
information, contact Yvonne Jones at (202) 512-8678 or jonesy@gao.gov
or Loren Yager (202) 512-4128 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Extent of Official Data from SWF Countries and Others on SWF Sizes and
Investments Varies:
Public Information from the U.S. Government and Others on SWF
Investments in U.S. Assets Is Limited:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: SWFs Meeting GAO Criteria:
Appendix III: Summary of SWF Investments in Financial Institutions:
Appendix IV: Definitions and Lists of SWFs:
Appendix V: Comments from the Department of the Treasury:
Appendix VI: Comments from the Department of Commerce:
Appendix VII: Comments from the U.S. Securities and Exchange
Commission:
Appendix VIII: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Top 10 Announced SWF Transactions in the United States (since
2007):
Table 2: SWF Investments in Financial Institutions:
Figures:
Figure 1: Current Account Balances of Foreign SWF Country Groups, 2000-
2007:
Figure 2: Foreign Exchange Reserves of SWF Countries (Excluding Gold),
2000-2006:
Figure 3: Oil Revenues of Oil-Exporting SWF Countries, 1998-2006, and
Annual Weighted World Average Price of Oil per Barrel, 1998-May 2008:
Figure 4: Locations and Inception Years of SWFs Relative to 2000:
Figure 5: Twenty Largest SWFs by Size of Reported or Estimated Assets:
Figure 6: Illustration of Where Sovereign Wealth Fund Investments Are
Reported in U.S. Foreign Investment Data:
Figure 7: Foreign Direct Investment Holdings from SWF Countries, 2000-
2006:
Figure 8: Foreign Portfolio Holdings of U.S. Securities:
Figure 9: Top Targets of SWF Investments Identified by Dealogic (2000-
2008):
Figure 10: Total Announced Cross-Border SWF Activity as Identified by
Dealogic (2000-2008):
Abbreviations:
BEA: Bureau of Economic Analysis:
CFIUS: Committee on Foreign Investment in the United States:
FINSA: Foreign Investment and National Security Act:
IMF: International Monetary Fund:
OECD: Organisation for Economic Co-operation and Development:
SEC: Securities and Exchange Commission:
SWF: Sovereign wealth funds:
United States Government Accountability Office:
Washington, DC 20548:
September 9, 2008:
The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
Although the United States government has long welcomed foreign
investment, at times acquisitions of American companies and assets by
foreign entities have attracted a high level of public interest.
Recently, increased attention has been given to the activities of
sovereign wealth funds (SWF), which are pools of government funds
invested in assets in other countries.[Footnote 1] Some SWFs, such as
those in certain Middle Eastern nations, have existed for decades, but
others, such as those in China and Russia, have been formed recently.
Funded through the sale of natural resources such as oil or through
other trade surpluses, some SWFs have large and growing sums of money
to invest.
Perspectives about SWF activities are mixed. Some observers see SWFs as
having positive effects on markets because they are usually long-term,
stable investors. Since August 2007, SWFs have made key investments
into U.S. and European banks seeking capital as the result of
disruptions in the subprime mortgage loan market. However, as large
government-controlled investment funds, SWFs have also been criticized
for the lack of transparency about their holdings and their investment
strategies. Some market observers have also expressed concerns that
SWFs could adversely affect asset prices by moving large amounts of
funds into or out of countries or markets. Concerns have also been
raised in congressional hearings and elsewhere that rather than making
investments primarily to earn investment returns, as is generally the
motivation of a private investor, some SWFs may instead invest their
assets to achieve the noncommercial or political goals of their
governments. Some observers note, however, that little evidence exists
that SWFs have engaged or intend to engage in noncommercial behavior
detrimental to another country's economy.[Footnote 2]
Your letter asked us to examine a broad range of issues about SWFs. As
agreed with your offices, we plan to address the issues raised in your
request in a series of reports. In order to respond to questions raised
about SWFs, having an understanding of how large they are and what
investments they are making can be useful. Therefore, in this report we
analyzed (1) the availability of data on the size of SWFs and their
holdings internationally that have been publicly reported by SWFs,
their governments, international organizations, or private sources and
(2) the availability of published or reported data from the U.S.
government or others on SWF investments in the United States. Further
reports will examine the extent to which various laws address the
ability of SWFs to invest in the United States, the disclosure and
governance practices SWFs follow, and the potential impact of SWFs and
options for addressing these for the United States.
Determining the availability of public data on the size of SWFs
required that we first identify SWFs by reviewing the definitions and
the lists of such funds that have been compiled by U.S. and
international agencies, financial services firms, and private research
organizations. Government officials and private researchers define SWFs
in various ways.[Footnote 3] Based on our research, we determined that
the funds likely to be of the most interest to policymakers are those
that:
1. are government-chartered or government-sponsored investment
vehicles;
2. invest some or all of their funds in assets other than sovereign
debt outside the country that established them;
3. are funded through government transfers arising primarily from
sovereign budget surpluses, trade surpluses, central bank currency
reserves, or revenues from the commodity wealth of a country; and:
4. are not actively functioning as a pension fund.
We excluded funds that act as pension funds--that is, that received
contributions from or made benefit payments to individuals--because
these funds generally have specific liabilities in the form of near-
term to long-term obligations that other funds do not have. As of July
2008, we had identified 48 funds that met these characteristics (see
app. II). For these funds, we attempted to identify any reported or
published asset amounts from their official SWF or other government Web
sites. When information was not available from these official
government sources, we used International Monetary Fund (IMF) reports
on countries' international financial positions. When neither of these
was available, we used information compiled by private researchers. To
identify SWF investments in the United States, we reviewed data on
foreign investment collected and published by the Department of the
Treasury (Treasury) and the Department of Commerce's (Commerce) Bureau
of Economic Analysis (BEA). We also reviewed information on individual
SWF investments from public filings made with the Securities and
Exchange Commission (SEC) and data compiled by private database firms
on financial transactions, including mergers and acquisitions, that are
available for public subscription. For this report, we did not review
information collected by the U.S. government about SWFs that may be
part of nonpublic processes, such as the Committee on Foreign
Investment in the United States (CFIUS) review process or filings with
the Board of Governors of the Federal Reserve System in relation to
banking law. We also did not review nonpublic information collected by
IMF in connection with Article IV consultations. We interviewed
officials from the Board of Governors of the Federal Reserve System,
Commerce, the Department of Defense, the Federal Reserve Bank of New
York, SEC, the Department of State, Treasury, and the U.S. Trade
Representative. We also spoke with staff from private research
organizations, investment banks, foreign investment funds, trade and
investment associations, and others. For a complete description of our
scope and methodology, see appendix I.
We conducted this performance audit from December 2007 through August
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Results in Brief:
Official information published by national governments or international
organizations on the size of assets, specific investments, and
investment objectives was not available for some SWFs. Our analysis
showed that about 60 percent of the 48 SWFs that we identified provided
information about the size of their investment assets, since the
beginning of 2007, through their Web sites, annual reports, or other
publications. We found that about 77 percent publicly reported the
purpose of their investment fund. Thirty of the funds disclosed some
information about their investment activities. Twenty-one reported some
information about their individual holdings, such as examples of
companies in which they had invested, although only 4 provided
disclosures of all their investments. Some countries specifically
prohibit any public disclosure of their SWF activities. In addition,
limited information was available from international financial
organizations. For example, although IMF collects information from
countries on their international financial flows, it does not require
countries to give specific information on their SWFs. Countries can
choose to include their SWF assets in their overall reserves, report
them separately as external investment assets, or not provide any
information on their SWF funds at all. Our analysis of publicly
available IMF country consultation documents showed that only 13
countries separately disclosed the value of their SWF holdings to IMF.
IMF officials told us that they expect to implement new reporting
guidance in 2009 that would call for countries to voluntarily report
their SWF holdings separately. The extent to which this increases the
transparency of SWFs depends on how many countries provide additional
information. Much of the available information about the value of SWF
holdings for some funds has been developed by private sector
researchers. According to these various sources, the reported or
estimated size of the total assets held by the 48 funds that we
identified is from $2.7 trillion to $3.2 trillion. Several researchers
expect the assets in SWFs to continue to grow substantially, although
some expect SWF growth to be more modest.
Although some U.S. government agencies and others collect and report
public information on foreign investments in the United States, these
sources have limitations and the overall level of U.S. investments by
SWFs cannot be specifically identified. Treasury and BEA periodically
survey U.S. financial institutions and others to publish aggregated
information on foreign transactions in and foreign holdings of U.S.
government and corporate securities and foreign ownership of U.S.
businesses. According to the information they published, foreign
investors--including governments, foreign private entities, and
individuals--collectively owned over $20 trillion of U.S. assets in
2007, but the amounts held by SWFs cannot be determined from these data
because of statutory and other limitations on the collection and public
disclosure of information. We also found that 16 SWFs reported some
information on their investments in the United States; some fully
disclosed U.S. holdings, but others only noted a few specific
investments or disclosed that a percentage of their portfolios included
U.S. assets. Some specific SWF investments can be identified from
reports publicly filed with SEC as required by the federal securities
laws and from information published by private firms that monitor and
compile data on financial transactions, such as mergers and
acquisitions. For example, upon acquiring more than 5 percent of a
voting class of certain equity securities, an investor is required to
file an ownership disclosure with SEC and such reports are publicly
available. According to an SEC analysis, eight investors it identified
as SWFs completed 147 transactions from 1990 through 2008 in which they
purchased a total of greater than 5 percent of a voting class of equity
securities, requiring them to file a disclosure report. Also, we
analyzed data from a financial research database and identified
transactions totaling over $43 billion from January 2007 through June
2008 that included an SWF investing in a U.S. company. Although the SEC
filings and private databases provide some data on individual SWF
investments, they do not capture all SWF activities in the United
States. For example, equity investments totaling 5 percent or less of a
publicly held issuer generally are not reported to SEC by SWFs, and the
private data collection firms may miss smaller investments. Expanding
U.S. agencies' data collection requirements could provide policymakers
with more information, but according to a U.S. official could also
increase costs for financial institutions that provide information and
increase data collection costs for agencies as well as potentially
discourage SWFs from making investments in the United States.
We provided copies of this report to Treasury, Commerce, and SEC for
their comments. In their letters, Treasury and Commerce indicated that
our report provides timely, useful contributions to the debate about
SWFs, and SEC reiterated that U.S. securities disclosure requirements
that we discussed apply equally to SWFs and other large investors.
Treasury, Commerce, and SEC also provided technical comments, which we
incorporated into the report as appropriate.
Background:
No one commonly accepted definition of SWFs exists, although the
feature of a government-controlled or government-managed pool of assets
is a part of most definitions. Government officials and private
researchers use varying characteristics to categorize SWFs, and
depending on the source and primary defining characteristic, different
types of funds may be included or excluded. Definitions have been
developed by Treasury, IMF, and private researchers. Some definitions
include pension funds or investments made from foreign currency
reserves maintained in central banks. An explanation of how we chose
funds to include in our analysis is in appendix I.
Countries with SWFs Are Accumulating Large Foreign Currency Reserves:
Countries that are major exporting nations or natural resource
providers may accumulate large amounts of foreign currency
reserves[Footnote 4] through the sale of their manufactured goods or
natural resources to other nations.[Footnote 5] While all countries
need some amount of foreign currency reserves to meet their
international payment obligations, in some cases countries may
accumulate currency reserves in excess of the amounts needed for
current or future obligations. Some countries invest their foreign
exchange reserves in assets such as the sovereign debt of other
countries, including securities issued by Treasury to fund U.S.
government operations. However, some countries have formed SWFs to
invest a portion of their excess foreign currency reserves in assets
likely to earn higher returns, such as the equity shares issued by
foreign publicly traded companies.
Some countries with current account (a broad measure of international
flows that includes trade balances) surpluses have created
SWFs.[Footnote 6] These include countries that are major exporters of
commodities or natural resources, such as oil, as well as those, such
as China, that are exporters of manufactured goods. In contrast, as the
world's largest importer of goods and natural resources, the United
States has run increasingly large current account deficits since the
early 1990s. The current account deficit of the United States was
$731.2 billion[Footnote 7] in 2007, whereas Asian countries with SWFs
had a combined current account surplus of over $400 billion and oil-
producing countries with SWFs had a combined surplus of about $338
billion (see fig. 1).
Figure 1: Current Account Balances of Foreign SWF Country Groups, 2000-
2007:
This figure is a vertical bar graph showing current account balances of
foreign SWF country groups, 2000-2007. The X axis represents the year,
and the Y axis represents dollars in millions. The bars represent oil
producing countries with sovereign wealth funds, Asian exporting
countries with sovereign wealth funds, and other countries sovereign
wealth funds.
Year: 2000;
Oil producing countries: 170;
Asian exporting countries: 53;
Other countries with sovereign wealth funds: -18.
Year: 2001;
Oil producing countries: 113;
Asian exporting countries: 45;
Other countries with sovereign wealth funds: -10.
Year: 2002;
Oil producing countries: 85;
Asian exporting countries: 60;
Other countries with sovereign wealth funds: -19.
Year: 2003;
Oil producing countries: 121;
Asian exporting countries: 91;
Other countries with sovereign wealth funds: -32.
Year: 2004;
Oil producing countries: 191;
Asian exporting countries: 132;
Other countries with sovereign wealth funds: -44.
Year: 2005;
Oil producing countries: 312;
Asian exporting countries: 224;
Other countries with sovereign wealth funds: -55.
Year: 2006;
Oil producing countries: 381;
Asian exporting countries: 318;
Other countries with sovereign wealth funds: -52.
Year: 2007;
Oil producing countries: 338;
Asian exporting countries: 443;
Other countries with sovereign wealth funds: -64.
[See PDF for image]
Source: International Monetary Fund, World Economic Outlook Database,
October 2007.
Notes: Oil-producing countries are Algeria, Angola, Azerbaijan,
Bahrain, Brunei, Canada, Colombia, Gabon, Kazakhstan, Kuwait, Libya,
Mauritania, Nigeria, Norway, Oman, Qatar, Russia, São Tomé and
Príncipe, Sudan, Trinidad and Tobago, United Arab Emirates, and
Venezuela. Asian exporting countries are China, Korea, Malaysia,
Singapore, and Vietnam. Other SWF countries are Australia, Botswana,
Chile, Ireland, Kiribati, and New Zealand.
[A] The 2006 and 2007 estimates are for select countries.
[End of figure]
These current account surpluses have led to a buildup of foreign
currency reserves in some countries. Since 1995, currency reserves in
industrial economies have more than doubled and currency reserves in
developing economies have increased sevenfold. Foreign currency
accumulation has been especially large among oil-producing countries
and Asian countries with large trade surpluses, especially with the
United States. China, Korea, Japan, and Russia hold the largest
quantities of foreign currency reserves. Asian exporting countries'
combined current account surpluses grew from $53 billion in 2000 to
$443 billion in 2007. Currency reserves have accumulated in SWF
countries (see fig. 2). The U.S. dollar accounted for slightly less
than two-thirds of total central bank foreign reserve holdings of all
countries as of the first quarter of 2008.
Figure 2: Foreign Exchange Reserves of SWF Countries (Excluding Gold),
2000-2006:
This figure is a shaded line graph showing foreign exchange reserves of
SWF countries (excluding gold), 2000-2006. The X axis represents the
year, and the Y axis represents the dollars in millions. The shading on
top is showing Asian supporting SWF countries, and the lower shading is
showing oil-producing SWF countries.
Year: 2000;
Other SWF Countries: 49;
Oil Producing SWF Countries: 192;
Asian Exporting SWF Countries: 376.
Year: 2001;
Other SWF Countries: 47;
Oil Producing SWF Countries: 206;
Asian Exporting SWF Countries: 427.
Year: 2002;
Other SWF Countries: 52;
Oil Producing SWF Countries: 236;
Asian Exporting SWF Countries: 532.
Year: 2003;
Other SWF Countries: 64;
Oil Producing SWF Countries: 297;
Asian Exporting SWF Countries: 710.
Year: 2004;
Other SWF Countries: 67;
Oil Producing SWF Countries: 397;
Asian Exporting SWF Countries: 999.
Year: 2005;
Other SWF Countries: 75;
Oil Producing SWF Countries: 502;
Asian Exporting SWF Countries: 1227.
Year: 2006;
Other SWF Countries: 96;
Oil Producing SWF Countries: 728;
Asian Exporting SWF Countries: 1539.
[See PDF for image]
Source: International Monetary Fund, International Financial Statistics
database, May 2008.
Notes: Oil-producing SWF countries are Algeria, Angola, Azerbaijan,
Bahrain, Brunei, Canada, Colombia, Gabon, Kazakhstan, Kuwait, Libya,
Mauritania, Nigeria, Norway, Oman, Qatar, Russia, São Tomé and
Príncipe, Sudan, Trinidad and Tobago, United Arab Emirates, and
Venezuela. Asian exporting countries are China, Korea, Malaysia,
Singapore, and Vietnam. Other SWF countries are Australia, Botswana,
Chile, Ireland, and New Zealand.
[End of figure]
For oil-exporting countries with SWFs, which include some nations in
the Middle East, as well as Norway and Russia, oil revenues remained
relatively stable from 1992 to 1998. But in 1999, oil prices--as
measured by the annual weighted world average price per barrel--began
to rise (see fig. 3).[Footnote 8] Consequently, oil revenues have
increased 561 percent for the major exporting nations from 1992 to
2006, the year for which the latest data were available. These revenue
increases have occurred as the price of oil per barrel has increased
from $23 in January 2000 to well over $100 in the first half of 2008,
including over $137 in July 2008.
Figure 3: Oil Revenues of Oil-Exporting SWF Countries, 1998-2006, and
Annual Weighted World Average Price of Oil per Barrel, 1998-May 2008:
This figure is a combination bar and line graph showing oil revenues of
oil-exporting SWF countries, 1998-2006, and annual weighted world
average price of oil per barrel, 1998 through May 2008. The X axis
represents year, the left Y axis represents oil revenues, and the right
Y axis represents average annual oil price (dollars).
Year: 1998;
Oil revenues (dollars in billions): 131.5;
Average oil price (dollars): 11.8.
Year: 1999;
Oil revenues (dollars in billions): 186.6;
Average oil price (dollars): 17.1.
Year: 2000;
Oil revenues (dollars in billions): 320.9;
Average oil price (dollars): 27.1.
Year: 2001;
Oil revenues (dollars in billions): 271.7;
Average oil price (dollars): 22.7.
Year: 2002;
Oil revenues (dollars in billions): 280;
Average oil price (dollars): 23.5.
Year: 2003;
Oil revenues (dollars in billions): 342.3;
Average oil price (dollars): 27.1.
Year: 2004;
Oil revenues (dollars in billions): 464.9;
Average oil price (dollars): 34.6.
Year: 2005;
Oil revenues (dollars in billions): 700.6;
Average oil price (dollars): 49.9.
Year: 2006;
Oil revenues (dollars in billions): 876.3;
Average oil price (dollars): 60.3.
Year: 2007;
Oil revenues (dollars in billions): [Empty];
Average oil price (dollars): 69.2.
Year: 2008;
Oil revenues (dollars in billions): [Empty];
Average oil price (dollars): 101.4.
[See PDF for image]
Source: Energy Information Administration.
Notes: Oil-producing SWF Countries are Algeria, Angola, Azerbaijan,
Bahrain, Brunei, Canada, Colombia, Gabon, Kazakhstan, Kuwait, Libya,
Mauritania, Nigeria, Norway, Oman, Qatar, Russia, São Tomé and
Príncipe, Sudan, Trinidad and Tobago, United Arab Emirates, and
Venezuela.
As of July 2008, data on oil revenues were only available through 2006.
[End of figure]
United States Reviews Some Foreign Investments:
An interagency group is responsible for reviewing some foreign
investment transactions in the United States. CFIUS, initially
established by executive order in 1975, reviews some foreign
investments in U.S. businesses, including some investments by
SWFs.[Footnote 9] Section 721 of the Defense Production Act authorizes
the President to suspend or prohibit mergers, acquisitions, or
takeovers that could result in foreign control of a U.S. business if
the transaction threatens to impair national security.[Footnote 10] The
President delegated his section 721 authority to review individual
transactions to CFIUS. CFIUS and its structure, role, process, and
responsibilities were formally established in statute in July 2007 with
the enactment of the Foreign Investment and National Security Act
(FINSA). FINSA amends section 721 of the Defense Production Act to
expand the illustrative list of factors to be considered in deciding
which investments could affect national security and brings greater
accountability to the CFIUS review process.[Footnote 11] Under FINSA,
foreign government-controlled transactions, including investments by
SWFs, reviewed by CFIUS must be subjected to an additional 45-day
investigation beyond the initial 30-day review, unless a determination
is made by an official at the deputy secretary level that the
investment will not impair national security.[Footnote 12] CFIUS
reviews transactions solely to determine their effect on national
security, including factors such as the level of domestic production
needed for projected national defense requirements and the capability
and capacity of domestic industries to meet national defense
requirements. If a transaction proceeds to a 45-day investigation after
the initial 30-day review and national security concerns remain after
the investigation, the President may suspend or prohibit a transaction.
According to Treasury, for the vast majority of transactions, any
national security concerns are resolved without needing to proceed to
the President for a final decision. The law provides that only those
transactions for which the President makes the final decision may be
disclosed publicly.
Extent of Official Data from SWF Countries and Others on SWF Sizes and
Investments Varies:
Information about SWFs publicly reported by SWFs, the governments that
control them, international organizations, and private researchers
provides a limited picture of their size, investments, and other
descriptive factors. Our analysis found that the amount and level of
detail that SWFs and their governments report about their activities
vary significantly, and international organizations that collect and
publish various statistics about countries' finances do not
consistently report on SWFs. As a result, some of the available
information about the size of certain of these funds consists of
estimates made by private researchers. Based on a combination of data
or estimates from these various sources, SWFs currently hold assets
estimated to be valued from $2.7 trillion to $3.2 trillion. Several
researchers expect SWFs to grow substantially in the coming years.
SWFs Exist in Most Regions of the World and Many Are Recently Created:
In our analysis of the publicly available government sources and
private researcher lists of SWFs, we identified 48 SWFs across 34
countries that met our criteria.[Footnote 13] These include funds from
most regions of the world. Of the 48 SWFs we identified, 13 were in the
Asia and Pacific region. Ten were located in the Middle East, with the
remaining 25 spread across Africa, North America, South America, the
Caribbean, and Europe. Some countries, such as Singapore, the United
Arab Emirates, and the Russian Federation, have more than one entity
that can be considered an SWF.
Some SWFs have existed for many years, but recently a number of new
funds have been created. For example, the Kuwait Investment Authority
and the Kiribati Revenue Equalization Reserve Fund have existed since
1953 and 1956, respectively. The Kuwait Investment Authority was
founded to invest the proceeds of natural resource wealth and provide
for future generations in Kuwait, and the Kiribati Revenue Equalization
Reserve Fund was formed to manage revenues from the sale of Kiribati's
phosphate supply. However, since 2000, many commodity and trade-
exporting countries have set up new SWFs. These funds have grown as a
result of rising exports of commodities such as oil, whose prices have
also risen. Of the 48 funds we identified, 28 have been established
since 2000 and 20 of these can be classified as commodity funds that
receive funds from selling commodities such as oil (see fig. 4).
Figure 4: Locations and Inception Years of SWFs Relative to 2000:
This figure is a map of the locations and inception years of SWFs
relative to 2000.
[See PDF for image]
Source: GAO.
[End of figure]
The Amount and Type of Information SWFs Report about Their
Characteristics and Activities Vary by Fund:
Based on our review of public disclosures from SWFs on government Web
sites, we determined that the extent to and the level of detail at
which SWFs publicly report information on their sizes, specific
holdings, or investment objectives varied. Based on these reviews, we
found that 29 of 48 funds publicly disclosed the value of assets since
the beginning of 2007. According to documents published by the
countries, 17 of these 29 report asset figures that are subject to an
annual audit by either an international public accounting firm or by
the country's national audit agency.[Footnote 14] In total, 36 of the
48 funds provided publicly reported size estimates, though some date
back to 2003. While most provided a specific value, 2 reported only a
minimum value. Among the largest 20 funds, 13 publicly reported total
assets. Of the funds in our analysis, 24 of 48 funds disseminated
information on fund-specific sites and 21 used other government Web
sites, such as those belonging to the finance ministry or central
bank.[Footnote 15]
Thirty funds reported at least some information on their investment
activities. Of the largest 20 funds, 12 reported this information. Only
4 of the 48 funds fully disclose the names of all the entities in which
they have invested. The level of detail reported by others' funds
varied. For example, 21 funds reported information about some of their
investments, such as the names of their significant investments, while
others disclosed only the regional breakdown of their holdings or gave
only general statements about the types of assets and sectors in which
they invested or planned to invest. These assets usually included
equities, bonds, real estate, or other alternative investments.
We found that about 77 percent of the 48 SWFs publicly reported the
purpose of their funds, with 13 of the largest 20 funds doing so. In
many cases, fund purposes included using the country's financial or
natural resources to earn investment returns intended to benefit the
country in various ways, including providing income for future
generations, balancing the government's budget, or preserving foreign
currency purchasing power.
The information publicly reported about SWFs varies in part because of
different disclosure requirements across countries.[Footnote 16] The
nature, frequency, and content of any SWF information are reported at
each country's discretion. Some countries may restrict the type of
reporting that can be released. For example, according to documents
published by the government of Kuwait, Kuwaiti law requires the Kuwait
Investment Authority to submit a detailed report on its activities to
the Kuwaiti government authorities, but prohibits it from disclosing
this information to the public. In contrast, according to Norwegian
government documents, Norwegian law requires that the country's SWF
publicly release comprehensive and detailed information regarding its
assets, objectives, and current holdings on a quarterly and annual
basis. Some funds that are not required to disclose information have
begun to do so voluntarily. For example, Temasek Holdings, an SWF
located in Singapore, is not required by Singapore law to release
financial performance reports, but it began doing so in 2004, according
to a Temasek Holdings official. This official told us that each SWF
operates in a different environment and must decide on the appropriate
amount of transparency. The official said that since Temasek Holdings
began publishing its annual review in 2004, it has disclosed more
information each year.
The extent to which other large private classes of investors disclose
information about their assets and investments also varies. For
example, investors such as hedge funds and private equity funds that
are not investment companies under U.S. securities laws have as their
investors primarily institutions or high net worth individuals and are
generally not required to publicly disclose information about their
investment portfolios. In contrast, U.S. mutual funds are generally
required to disclose certain information about their investment
portfolios and portfolio transactions.[Footnote 17] While some SWFs
disclose holdings information, officials of other SWFs expressed
concerns that disclosures could be used by other investors in ways that
could reduce the funds' investment earnings.
International Organizations' Data Collections Do Not Generally Obtain
Information on SWF Size or Investments:
International organizations collect and publish various statistics
about countries' finances, but report only limited information on SWFs.
Until recently there has been a lack of guidance in macroeconomic
statistical standards on the treatment of SWFs and no systematic review
of whether the assets of these funds are included in the data reported.
IMF officials have initiated an effort to increase the amount and
specificity of SWF activities in IMF documents. Currently, IMF members
are expected to disclose a range of fiscal and macroeconomic
statistics, including countries' balance of payments and their
international investment position, that are made public in various IMF
reports and IMF's World Economic Outlook and Global Financial Stability
Report. The data that countries report may include the level of
reserves and the amount of external assets they hold. However, the
coverage of SWFs in these statistics is not uniform, not least because
SWFs can be included in different accounts depending on specific
statistical criteria. According to IMF staff, the countries themselves
determine whether to include the value of their SWF assets in their
reserve assets or separately as external assets. In some cases,
countries do not report any information about their SWF. Further, some
member countries do not submit data on their international investment
position to IMF. Analyzing a selection of 21 countries with SWFs, IMF
staff found that only 11 included the value of their SWFs' assets in
either their balance of payments or international investment position
data. IMF staff noted that members are not required to report the value
of the SWF holdings as a separate line item and no member currently
does so.[Footnote 18]
In addition to information from required data reporting, IMF staff also
collected some information about SWFs through their consultations with
individual countries. IMF staff periodically hold policy discussions--
called Article IV consultations from the section of the IMF rules that
requires them--in member countries to monitor their economic
developments and outlook and assess whether their policies promote
domestic and external stability. According to IMF staff, Article IV
staff reports are expected to focus strictly on those issues. We
reviewed publicly available Article IV reports, or summary reports in
several cases, for the 34 countries that we identified as having
SWFs.[Footnote 19] Based on this analysis, we found information about
the size of a country's SWF in the Article IV reports or public
summaries for 13 of these countries.[Footnote 20] The extent of the
information on SWFs publicly reported from the Article IV consultations
varied, with some documents only noting that the country had such a
fund and others providing the current level of assets in the SWF and
country officials' expectations for growth of the SWF through revenues
or fiscal transfer.
IMF is implementing changes to its reporting that could expand the
official data available on SWF activities. IMF officials have stated
that collecting additional data on SWFs is important because of the
fiscal, monetary, and economic policy impacts that the funds could have
for IMF member countries and for the global economy, given their
increasing prevalence and growth. IMF expects to implement new
reporting guidance in 2009 that would call for countries to separately
report their SWF holdings on a voluntary basis. While this is a
positive development that could further expand the official information
available, its success depends on the degree to which countries
participate.
In addition, IMF is including guidance on how to properly classify SWF
assets in its latest version of the balance of payments manual, which
it expects to publish in late 2008. The current version of this manual
was last updated in 1993 and does not address SWFs. In recognition of
the growing number of SWFs, IMF officials told us that they began to
address the methodological issues related to a definition of SWFs and
SWF assets in 2005 and subsequently initiated an international
consultation on the issue. IMF expects that this additional detail will
provide an understanding of the location of SWF assets, which,
depending on certain criteria, can be reported in either the reserve
assets or the external accounts or in other accounts of a country's
financial accounts data. IMF notes that this new reporting item will
help to facilitate proper identification of SWFs and may contribute to
greater transparency and to a better understanding of their impact on
the country's external position and reserve assets. Treasury staff told
us that they were involved in the group that considered these changes,
and while the United States and some other countries would have
preferred that the proposed SWF reporting be mandatory, the group chose
the voluntary option.
In addition, IMF is facilitating and coordinating the work of the
International Working Group of Sovereign Wealth Funds that is
deliberating on a set of Generally Accepted Principles and Practices
relating to sovereign wealth funds.[Footnote 21] These are intended to
set out a framework of sound operation for SWFs. The specific elements
are likely to come from reviews of good SWF practices. These principles
are also aimed at improving the understanding of SWFs in both their
home countries and recipient countries.
Other organizations involved in monitoring international financial
developments do not regularly report on SWF activities.[Footnote 22]
For example, the Organisation for Economic Co-operation and Development
(OECD), an organization of 30 countries responsible for supporting
global economic growth and trade, collects data on foreign direct
investment inflows and outflows and national accounts information from
its member countries and some selected nonmember countries. These data,
however, do not specifically identify SWFs. Further, only 9 countries
included in OECD's surveys are known to have SWFs. Many countries with
SWFs are not members of OECD. A recent document from OECD indicates
that it is using other publicly available sources of data to estimate
the size and asset allocation of selected SWFs. Recognizing the growing
importance of SWFs, Group of Seven finance ministers and central bank
governors, including officials from Treasury, proposed that OECD
develop investment policy guidelines for recipient countries of SWF
investment. According to recent OECD publications, the organization is
focusing its SWF work on these guidelines.
Private Researchers Have Collected Some Information on SWFs:
Because not all SWFs disclose their activities publicly, information
about the size of some SWFs comes from estimates published by private
researchers, including investment bank researchers and nonprofit
research and policy institutions. Though their methodologies and data
sources vary, these researchers generally begin by reviewing publicly
available data and statements from national authorities of SWF
countries, press releases, and other research reports. In some cases,
they use confidential data, such as information provided to their
firms' trading staffs by SWF officials or private conversations with
their firms' investment managers. However, they are usually prohibited
from publicly disclosing the sources of information received
confidentially. At least one researcher we spoke with also used certain
IMF balance of payments and World Economic Outlook statistics as
proxies for SWF outflows and purchases. The researchers often make
projections of the level of foreign reserves, commodity prices, amounts
of transfers from reserves to the SWF, and the assumed rate of return
for the fund to develop judgmental estimates of the current size of
assets held by SWFs. These estimates have been published publicly by
these researchers as part of their analysis of trends affecting world
financial markets.
The researchers we spoke with acknowledged that the accuracy of their
estimates is primarily limited by the sparse official data on SWFs.
Researchers also cited other limitations, including difficulty in
verifying underlying assumptions, such as the level of transfers from
SWFs or the projected rates of return of the funds, and questionable
accuracy and validity of data they use from secondary sources to
support their models.
By analyzing the information reported by individual SWFs, IMF data, and
private researchers' estimates, we found the total assets held by the
48 SWFs we identified are estimated to be from $2.7 trillion to $3.2
trillion (see app. II for the list of funds). Many of these estimates
were published in the last year prior to the significant rise in oil
prices in the first half of 2008. The largest funds held the majority
of these assets, with the largest 20 funds representing almost 95
percent and the largest 10 having more than 80 percent of the total SWF
assets. The largest 20 funds had assets estimated to range from $2.5
trillion to $3.0 trillion, as shown in figure 5.
Figure 5: Twenty Largest SWFs by Size of Reported or Estimated Assets:
This figure is a chart of the twenty largest SWFs by size of reported
or estimated assets.
[See PDF for image]
Source: GAO analysis of SWF-disseminated, IMF, and private researcher
data.
Notes: These represent the largest of the funds that met our criteria
for being an SWF. Asset sizes were reported or estimates were published
from 2006 through July 2008. See app. II for a full listing of the 48
largest SWFs that met our criteria.
[End of figure]
Total SWF Assets Are Currently Smaller Than Those Held by Other Large
Investor Classes but Are Expected to Grow:
Although SWFs have sizeable assets, their assets are a small portion of
overall global assets and are less than the assets of several other
large classes of investors. The estimated total size of the SWFs we
identified, $2.7 trillion to $3.2 trillion, constituted about 1.6
percent of the estimated $190 trillion of financial assets outstanding
globally as of the end of 2006. The estimated SWF holdings we
identified likely exceed those of hedge funds, which most researchers
estimated to be about $2 trillion. However, according to an estimate by
the consulting firm McKinsey Global Institute, assets in pension funds
($28.1 trillion) and mutual funds ($26.2 trillion) exceed those of SWFs
by a large margin.
SWF assets are expected to grow significantly in the future. SWFs are
predicted to continue to grow significantly, to between $5 trillion and
$13.4 trillion by 2017.[Footnote 23] IMF staff estimated that in the
next 5 years assets in SWFs will grow to between $6 trillion and $10
trillion. The variation in estimates largely reflects researchers' use
of different methods and assumptions about future economic conditions.
Though their methodologies varied, each of these researchers generally
used several common factors, the most common being changes in oil
prices. Several researchers stated that if oil prices rise higher than
their projections, revenues going to oil-based SWFs will likely
increase and the assets could grow beyond currently estimated levels.
Other factors include growth in foreign exchange reserves, amount of
transfers from surpluses to SWFs, persistence in trade imbalances, the
rate of return or performance of an SWF, and variation in exchange rate
regimes across SWF countries.
Public Information from the U.S. Government and Others on SWF
Investments in U.S. Assets Is Limited:
BEA and Treasury are charged with collecting and reporting information
on foreign investment in the United States, but the extent to which
SWFs have invested in U.S. assets is not readily identifiable from such
data. Only a few SWFs reported specific information on their U.S.
investments. Some individual SWF investments in U.S. assets can be
identified from reports filed by investors and issuers as required by
U.S. securities laws, but these filings would not necessarily reflect
all such investments during any given time period. Further, some
private data collection entities also report information on specific
transactions by SWFs, but these also may not capture all activities.
U.S. Government Reports Aggregate Totals for Foreign Investment in the
United States but Do Not Specifically Identify SWF Activities:
Two U.S. agencies, Treasury and Commerce's BEA, collect and report
aggregate information on foreign investment in the United States that
includes SWF investments. To provide information to policymakers and to
the public, Congress enacted the International Investment Survey Act of
1976 (subsequently broadened and redesignated as the International
Investment and Trade in Services Survey Act [International Investment
Survey Act]), which authorizes the collection and reporting of
information on foreign investment in the United States.[Footnote 24]
The act requires that a benchmark survey of foreign direct investments
and foreign portfolio investments in the United States be conducted at
least once every 5 years.[Footnote 25] Under this authority, BEA
collects data on foreign direct investment in the United States,
defined as the ownership of 10 percent or more of a business
enterprise.[Footnote 26] BEA collects the data on direct investment in
the United States by both public and private foreign entities, which by
definition would generally include SWFs, by surveying U.S. companies
regarding foreign ownership.[Footnote 27] The data are used to
calculate U.S. economic accounts, including the U.S. international
investment position data.
Treasury collects data on foreign portfolio investment in the United
States, defined as foreign investments that are not foreign direct
investments.[Footnote 28] Treasury collects the data through surveys of
U.S. financial institutions and others.[Footnote 29] These surveys
collect data on ownership of U.S. assets by foreign residents and
foreign official institutions.[Footnote 30] Officials from these
agencies use these data in computing the U.S. balance of payments
accounts and the U.S. international investment position and in the
formulation of international economic and financial policies. The data
are also used by agencies to provide aggregate information to the
public on foreign portfolio investments, including reporting this
information periodically in the monthly Survey of Current Business.
Data Collected by U.S. Agencies Show Considerable Foreign Investment in
United States, but Do Not Identify SWF Activity:
SWF investment holdings are included in the foreign investment data
collected by Treasury and BEA, but cannot be specifically identified
because of data collection limitations and restraints on revealing the
identity of reporting persons and investors.[Footnote 31] BEA's foreign
direct investment data are published in the aggregate and do not
identify the owner of the asset. BEA also aggregates the holdings of
private and government entities for disclosure purposes. As a result,
the extent to which SWFs have made investments of 10 percent or more in
a U.S. business, while included as part of the foreign direct
investment total, cannot be identified from these data.
Treasury's portfolio investment data collection and reporting separates
foreign official portfolio investment holdings, which include most
SWFs, from foreign private portfolio investment. However, the
information that is reported to Treasury does not include the specific
identity of the investing organization; thus the extent of SWF
investment within the overall foreign official holdings data cannot be
identified. In addition, Treasury officials reported that some SWF
investments may be classified as private if the investments are made
through private foreign intermediaries, such as investment banks, or if
an SWF is operated on a subnational level, such as by a state or a
province of a country, as those types of organizations are not included
in Treasury's definition of official government institutions.
Both BEA and Treasury stated that the data published do not include the
identity of specific investors and are aggregated to ensure compliance
with the statutory requirement that collected information not be
published or disclosed in a manner in which a reporting person can be
identified.[Footnote 32] Figure 6 illustrates how data on SWF
investments are included but are not specifically identifiable in the
data collected or reported by these agencies. The data BEA and Treasury
collect include the total amount of foreign direct investment and the
total amount of portfolio investment by foreign official institutions,
but the extent of SWF investments in either category cannot be
determined. The data collected on both direct and portfolio investments
are used by BEA in computing the U.S. international investment
position, published annually in its July issue of the Survey of Current
Business.[Footnote 33]
Figure 6: Illustration of Where Sovereign Wealth Fund Investments Are
Reported in U.S. Foreign Investment Data:
This figure is an illustration of where sovereign wealth fund
investments are reported in U.S. foreign investment data.
[See PDF for image]
Source: GAO analysis of BEA and Treasury Reporting.
[A] Preliminary.
[End of figure]
The U.S. international investment position data show that foreign
investors, including individuals, private entities, and government
organizations, owned assets in the United States in 2007 valued at
approximately $20.1 trillion.[Footnote 34] As shown in figure 6,
foreign direct investment, which includes all direct investments by
SWFs, totaled $2.4 trillion in 2007 (shown in the line "Direct
investment at current cost"). This is up from $1.4 trillion in 2000.
Foreign official portfolio investment holdings, which include SWF
investments, totaled $3.3 trillion in 2007 (shown in the line "Foreign
official assets in the United States"). This is up from $1 trillion in
2000. BEA officials stated that within this total many of the SWF
portfolio investment holdings are classified as "Other foreign official
assets," since this subcategory reflects transactions by foreign
official agencies in stocks and bonds of U.S. corporations and in bonds
of state and local governments.[Footnote 35] These reported holdings
totaled roughly $404 billion in 2007. This shows an increase from $102
billion in 2000. To the extent that SWFs are invested in U.S.
government securities, those holdings are included in the "U.S.
Treasury securities" or "Other" subcategories of "U.S. government
securities" under "Foreign official assets in the United States." Bank
accounts or money market instruments held by SWFs are included in "U.S.
liabilities reported by U.S. banks" under "Foreign official assets in
the United States."
BEA and Treasury Data Show That Investment from Countries with SWFs and
from Official Institutions Is Increasing:
While BEA and Treasury data cannot be used to identify the total extent
of SWF investment, these data show that the United States has been
receiving more investment over time from countries with SWFs and from
foreign official institutions. BEA data on foreign direct investment by
country show an increase in foreign direct investment in the United
States in recent years from countries with SWFs.[Footnote 36] These
investments would include those made by private individuals and
businesses and by any government entities in those countries--including
their SWFs. As figure 7 illustrates, foreign direct investment holdings
from countries with SWFs have increased from $173 billion in 2000 to
roughly $247 billion in 2006. Although the exact extent cannot be
determined, some of this increase is likely from SWF investments.
Figure 7: Foreign Direct Investment Holdings from SWF Countries, 2000-
2006:
This figure is a vertical bar graph showing foreign direct investment
holding from SWF countries, 2000-2006. The X axis represents year, and
the Y axis represents dollars in billions.
Year: 2000;
Dollars in billions: 173.
Year: 2001;
Dollars in billions: 150.
Year: 2002;
Dollars in billions: 172.
Year: 2003;
Dollars in billions: 174.
Year: 2004;
Dollars in billions: 203.
Year: 2005;
Dollars in billions: 221.
Year: 2006;
Dollars in billions: 247.
[See PDF for image]
Source: Bureau of Economic Analysis, March 2008.
Notes: In some cases data are not released because of disclosure
concerns. In these instances foreign direct investment values were
imputed by GAO, for countries with significant direct investments in
the United States. GAO's identified SWF countries: Azerbaijan, Canada,
Gabon, Kazakhstan, Norway, Russia, Trinidad and Tobago, Venezuela,
Bahrain, Kuwait, Oman, Qatar, United Arab Emirates, Australia, Chile,
Ireland, New Zealand, China, Malaysia, Singapore, South Korea, and
Vietnam.
[End of figure]
Similarly, Treasury data show that portfolio investment from foreign
official institutions, which could include SWFs, has increased in all
asset classes, including equities. Treasury's portfolio investment by
asset class data show that in 2007, approximately $9.1 trillion of all
U.S. long-term securities were foreign owned, and of that, $2.6
trillion were held by official institutions.[Footnote 37] The $2.6
trillion in foreign official securities holdings includes almost $1.5
trillion in U.S. Treasury debt and $0.3 trillion in U.S. equities.
While official institutions owned only a small share of the total
amount of foreign-owned U.S. equities, their investment has grown
dramatically, increasing from $87 billion in 2000 to $266 billion in
2007. (See fig. 8.) Treasury officials reported that the recent rise in
U.S. equity ownership by foreign official institutions in the United
States may reflect investments from SWFs, since SWFs are intended as
vehicles to diversify a country's reserves into alternative assets.
Figure 8: Foreign Portfolio Holdings of U.S. Securities:
This figure is a combination of three graphs showing foreign portfolio
holds of U.S. securities. The graphs represent all U.S. securities,
corporate equity, and U.S. Treasury securities. The X axis in each
graph represents the year, and the Y axis in each graph is represents
the dollars in billions. The darker shading in each graph represents
private, and the lighter shading in each graph represent private.
All U.S. securities:
Year: 2000;
Foreign official: 652;
Private: 2907.
Year: 2002;
Foreign official: 796;
Private: 3130.
Year: 2003;
Foreign official: 959;
Private: 3544.
Year: 2004;
Foreign official: 1296;
Private: 4135.
Year: 2005;
Foreign official: 1641;
Private: 4621.
Year: 2006;
Foreign official: 1970;
Private: 5192.
Year: 2007;
Foreign official: 2567;
Private: 6569.
Corporate equity:
Year: 2000;
Foreign official: 87;
Private: 1622.
Year: 2002;
Foreign official: 84;
Private: 1311.
Year: 2003;
Foreign official: 105;
Private: 1459.
Year: 2004;
Foreign official: 132;
Private: 1798.
Year: 2005;
Foreign official: 177;
Private: 1967.
Year: 2006;
Foreign official: 215;
Private: 2215.
Year: 2007;
Foreign official: 266;
Private: 2864.
U.S. Treasury securities:
Fiscal year: 2000;
Foreign official: 465;
Private: 420.
Fiscal year: 2002;
Foreign official: 560;
Private: 348.
Fiscal year: 2003;
Foreign official: 653;
Private: 463.
Fiscal year: 2004;
Foreign official: 912;
Private: 514.
Fiscal year: 2005;
Foreign official: 1079;
Private: 520.
Fiscal year: 2006;
Foreign official: 1213;
Private: 514.
Fiscal year: 2007;
Foreign official: 1452;
Private: 513.
[See PDF for image]
Source: Treasury International Capital System.
Notes: All U.S. securities includes long-term holdings of U.S.
equities, marketable treasuries, U.S. government corporate and
federally sponsored agency bonds, and corporate and municipal debt.
Foreign official institutions include central banks, foreign finance
ministries, as well as government investment funds and various other
central government institutions. Treasury International Capital surveys
for foreign holdings of U.S. assets were not conducted in 2001.
[End of figure]
Adjustments to BEA and Treasury Collection Procedures May Not Result in
Increased Disclosure and Would Entail Additional Costs:
Although BEA and Treasury may be able to adjust their data collection
activities to obtain more information about SWF investment, such
changes may not result in more detailed public disclosure and will
entail increased costs, according to agency officials. BEA officials
told us that they may be able to use the information they currently
collect to differentiate between foreign official and private owners of
direct investment holdings in the data collected by utilizing the
ultimate beneficial owner codes assigned to transactions in their
surveys. They stated that they are considering reporting the
information in this manner. This breakout would help to narrow the
segment of foreign direct investment that contains SWF investments, but
it would not identify SWF investment specifically since it would still
combine SWF investments with other official government investments.
Regarding portfolio investment, Treasury officials reported that while
more detailed information would allow them to report SWF investment
separately from that of other foreign official institutions, Treasury
would be prohibited from releasing such information publicly in cases
where it would make the foreign owners easily identifiable.[Footnote
38] According to a Treasury official, some business groups advised
Congress during the initial passage of the International Investment
Survey Act that disclosure of their transactions and holdings in
foreign countries would adversely affect their companies. If foreign
companies in the United States share that view, then removing the
disclosure restriction might make foreign investors less likely to
invest in the United States, and they might seek investments in
countries with less stringent disclosure requirements. In addition, the
official said that collecting additional information on foreign
investment would increase costs for Treasury as well as for reporting
entities.[Footnote 39] A representative of one financial institution
that is a reporting entity told us that the institution would need to
make changes to its internal reporting systems in order to provide more
identifying information on investors, but the official could not
estimate the total costs of doing so.
Some Information on Specific SWF Investments in the United States Is
Available from SWF Disclosures and Private Sources:
Some information on specific SWF investments in U.S. assets can be
determined from disclosures made by SWFs themselves and from private
data sources. A limited number of SWFs publicly disclose information
about their investment activities in individual countries, including
the United States. Based on our review of disclosures made on SWF or
national government Web sites, we found that 16 of the 48 SWFs we
identified provided some information on their investment activity in
the United States. The amount of detail varied from a complete listing
of all asset holdings of a fund to only information about how
investments are allocated by location. For example, Norway's SWF
publishes a complete list of its holdings, which indicated that as of
year-end 2006, its fund held positions in over 1,000 U.S. companies,
valued at over $110 million. In contrast, the disclosures made by
Kuwait's fund did not identify its investments, but stated that the
fund invests in equities in the United States and Canada; the fund did
not provide information on total asset size or dollar values or
identify specific investments. One of Singapore's SWFs disclosed the
identity of a few of its key holdings, including U.S.-based
investments. Seven other funds also reported information on their
investment holdings; however, none of these noted any U.S. investments.
Specific SWF Investments Are Disclosed in U.S. Securities Filings:
Disclosure reports required to be filed with SEC by both investors and
issuers of securities are a source of information on individual SWF
transactions in the United States, but only for those transactions that
meet certain thresholds. Any investor, including SWFs, upon acquiring
beneficial ownership of greater than 5 percent of a voting class of an
issuer's Section 12 registered equity securities, must file a statement
of disclosure with SEC.[Footnote 40] The information required on this
statement includes:
* identifying information, including citizenship;
* the securities being purchased and the issuer;
* the source and amount of funds used to purchase the securities;
* the purpose of the transaction;
* the number of shares acquired, and the percent of ownership that
number reflects; and:
* the identification of any contracts, arrangements, understandings, or
relationships with respect to securities of the issuer.
When there are changes to the level of ownership or amount of
securities held, the investor is generally required to file an
amendment. Investors taking passive ownership stakes in the same
equities, meaning they do not intend to exert any form of control, may
qualify to file a less-detailed statement.[Footnote 41]
SEC also requires disclosure for investors, including SWFs, whose
beneficial ownership of a class of voting equity securities registered
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934
exceeds 10 percent. Under Section 16(a) of the Securities Exchange Act
of 1934, within 10 calendar days of becoming a more than 10 percent
beneficial owner, an investor must file an initial report disclosing
the amount of the investor's beneficial ownership of any equity
securities of the issuer, whether direct or indirect. In addition, for
as long as investors remain more than 10 percent beneficial owners,
they must file reports of changes in beneficial ownership with the SEC
within two business days of the transaction resulting in the change in
beneficial ownership. This requirement applies to sales and additional
purchases of any equity securities of the same issuer.[Footnote 42]
Certain beneficial ownership filings required under U.S. securities
laws offer some information about SWF activities, but cannot be used to
determine the full extent of SWF transactions in the United States. For
example, any transaction involving a purchase resulting in total
beneficial ownership of 5 percent or less of a voting class of an
issuer's Section 12 registered equity securities would not have to be
disclosed under the federal beneficial ownership reporting rules and
otherwise may not necessarily have to be disclosed. Thus, the SEC data
would most likely not include information on SWF investments under this
threshold. In addition, although the filing of these reports is
mandatory for all investors who meet the requirements, SEC staff told
us that without conducting a specific inquiry, their ability to
determine whether all qualifying investments have been disclosed,
including any by an SWF, may be limited. To identify nonfilers, the SEC
staff told us that they sometimes use sources such as public comments
and media reports. SEC has not brought a public action against an SWF
for violating these beneficial ownership reporting requirements.
Finally, given that these filings are primarily used to disclose
ownership in the securities of specific issuers, the information is not
compiled or reported by SEC in any aggregated format. Thus, identifying
SWF transactions requires searching by issuer or SWF name, and SEC
staff noted, for example, that identifying such transactions can be
difficult because some SWF filers may have numerous subsidiaries under
whose names they might file a report.
Information about some SWF investments in U.S. issuers can be
identified in certain filings made under the federal securities laws.
As a result of the recent interest in SWF activities, SEC staff
analyzed such filings to identify transactions involving SWFs. To
identify specific transactions, they searched for filings by known SWFs
and also reviewed filings from countries with SWFs to identify SWF
filings. According to their analysis, since 1990 eight different SWFs
have reported to SEC ownership of over 5 percent, covering 147
transactions in 58 unique issuers. SEC staff told us that their
analysis likely reflects only some of the SWF investments in U.S.
issuers.
The federal securities laws also require U.S. public companies to file
reports on their financial condition, which can also reveal data on
some SWF investments in the United States below the greater than 5
percent threshold for investor disclosures. Companies with publicly
traded securities are required to publicly disclose events they deem
material to their operations or financial condition, such as the
acquisition of assets or the resignation of officers.[Footnote 43] In
some cases, U.S. companies have made these filings to announce that
they have received investments from an SWF, including investments that
did not exceed the 5 percent threshold and require a beneficial
ownership filing by the SWF. For example, Citigroup filed a report
outlining a transaction involving an SWF investment that was below the
5 percent ownership stake but the SWF investment was still deemed
material to the financial condition of the company. Some of the U.S.
companies that recently received SWF investments also included
information about these transactions in their annual reports.
Private Data Collection Entities Compile and Report Information on SWF
Investments in the United States but Do Not Capture All Activity:
Private data collection entities compile and report information on
specific SWF transactions, including those captured by SEC filings, but
do not capture all SWF transactions. A number of private firms collect
and distribute information relating to financial transactions. For
example, database companies, such as Dealogic and Thompson Reuters,
collect information globally on financial transactions, including
mergers and acquisitions, for users such as investment banks, rating
agencies, and private researchers. To compile their databases, they use
public filings (including SEC filings), press releases, news
announcements, and shareholder lists, as well as information from
relationships with large financial intermediaries, such as investment
banks and attorneys. Therefore, information in these databases includes
transactions that can be identified through SEC filings but also may
include additional transactions that are not disclosed through U.S.
securities laws but are identified in other ways, such as through
company press statements or discussions with parties to the
transaction. However, these data may not be complete, and the database
companies cannot determine to what extent they capture all SWF
transactions. For example, officials at these companies told us that
they will most likely miss smaller transactions, consisting of
acquisitions resulting in aggregate beneficial ownership of 5 percent
or less, or unannounced relatively small dollar deals. Since many SWFs
have historically taken noncontrolling interests in U.S. companies with
total ownership often below 5 percent, the number of transactions not
captured could be large. In addition, a transaction completed by a
subsidiary of an SWF may not be identified as an SWF investment.
We reviewed the information collected by Dealogic on investments made
by SWFs in foreign countries, otherwise known as cross-border
transactions. Based on this, the United States has, since 2000,
attracted the largest volume of cross-border SWF investment, with
announced deals totaling approximately $48 billion. Roughly $43 billion
of this value reflects investment since 2007, largely consisting of
deals involving financial sector entities.[Footnote 44] These deals
comprised 8 of the top 10 announced SWF investments in the United
States since 2000 (see table 1).[Footnote 45]
Table 1: Top 10 Announced SWF Transactions in the United States (since
2007):
Announcement Date: 17-Jan-08;
Target: Citigroup Inc (Not disclosed);
Acquirer: Government of Singapore Investment Corporation Pte Ltd;
Capital Research Global Investors;
Private Investor;
Kuwait Investment Authority;
Deal Value $ (m): $12,500.00;
Sector: Financial.
Announcement Date: 27-Nov-07;
Target: Citigroup Inc (4.9%);
Acquirer: Abu Dhabi Investment Authority;
Deal Value $ (m): $7,500.00;
Sector: Financial.
Announcement Date: 14-Jan-08;
Target: Merrill Lynch & Co Inc (Not disclosed);
Acquirer: Kuwait Investment Authority;
Korean Investment Fund Inc;
Mizuho Financial Group Inc;
Deal Value $ (m): $6,600.00;
Sector: Financial.
Announcement Date: 24-Dec-07;
Target: Merrill Lynch & Company Inc (13%);
Acquirer: Temasek Holdings (Pte) Ltd;
Davis Selected Advisors LP;
Deal Value $ (m): $6,200.00;
Sector: Financial.
Announcement Date: 19-Dec-07;
Target: Morgan Stanley & Company Inc (9.9%);
Acquirer: China Investment Corporation;
Deal Value $ (m): $5,000.00;
Sector: Financial.
Announcement Date: 21-May-07;
Target: Blackstone Group LP (10%);
Acquirer: China Investment Corporation;
Deal Value $ (m): $3,000.00;
Sector: Financial.
Announcement Date: 22-Aug-07;
Target: CityCenter Holdings LLC (50%);
Acquirer: Dubai World;
Deal Value $ (m): $2,800.00;
Sector: Real Estate.
Announcement Date: 20-Sep-07;
Target: Carlyle Group Inc (7.5%);
Acquirer: Mubadala Development Company;
Deal Value $ (m): $1,350.00;
Sector: Financial.
Announcement Date: 30-Oct-07;
Target: Och-Ziff Capital Management Group (9.9%);
Acquirer: Dubai International Capital LLC;
Deal Value $ (m): $1,260.00;
Sector: Financial.
Announcement Date: 16-Nov-07;
Target: Advanced Micro Devices Inc - AMD (8.1%);
Acquirer: Mubadala Development Company;
Deal Value $ (m): $622.00;
Sector: Technology.
Source: Dealogic.
Note: Dealogic's definition of SWFs includes some funds that we did not
identify as SWFs, including Dubai International Capital, LLC.
[End of table]
These large SWF-led investments into financial sector entities came at
a time when firms were facing large losses and asset write-downs due to
the subprime mortgage crisis of 2007. The investments were seen as
positive events by some market participants because they provided much-
needed capital. (See app. III for a summary of some of these
transactions.)
According to Dealogic, Switzerland, China, and the United Kingdom were
also major targets of cross-border SWF investments since 2000 (see fig.
9).
Figure 9: Top Targets of SWF Investments Identified by Dealogic (2000-
2008):
This figure is a chart showing the top targets of SWF investments
identified by dealogic (2000-2008).
Recipient country: United States;
Total deal value (dollars in millions): 48,006.00.
Recipient country: United Kingdom;
Total deal value (dollars in millions): 16,115.53.
Recipient country: Switzerland;
Total deal value (dollars in millions): 12,121.82.
Recipient country: China;
Total deal value (dollars in millions): 11,738.43.
Recipient country: France;
Total deal value (dollars in millions): 4,449.79.
Recipient country: Thailand;
Total deal value (dollars in millions): 4,267.84.
Recipient country: Indonesia;
Total deal value (dollars in millions): 4,170.85.
Recipient country: India;
Total deal value (dollars in millions): 3,207.24.
Recipient country: Japan;
Total deal value (dollars in millions): 2,050.20.
Recipient country: Turkey;
Total deal value (dollars in millions): 1,921.00.
[See PDF for image]
Source: GAO analysis of Dealogic data.
[End of figure]
Dealogic data also show that announced cross-border investments led by
SWFs worldwide have risen dramatically since 2000, both in terms of
number of deals and total dollar volume. (See fig. 10) Transactions
targeting the United States have also risen sharply, due in part to
favorable market conditions for foreign investors. In 2005, only one
announced U.S. transaction totaling $50 million was reported by
Dealogic.[Footnote 46] In contrast, nine transactions were reported in
2007, totaling $28 billion. As of June 2008, four transactions in the
United States have been announced for the year, totaling almost $20
billion. As shown in figure 10, global cross-border SWF investment
increased from $429 million in 2000 to almost $53 billion in 2007.
Figure 10: Total Announced Cross-Border SWF Activity as Identified by
Dealogic (2000-2008):
This figure is a table showing the total announced cross-border SWF
activity as identified by dealogic (2000-2008).
Year: 2000;
Total number of deals: 6;
Total deal value (dollars in millions): 429.19.
Year: 2001;
Total number of deals: 4;
Total deal value (dollars in millions): 51.51.
Year: 2002;
Total number of deals: 3;
Total deal value (dollars in millions): 232.27.
Year: 2003;
Total number of deals: 7;
Total deal value (dollars in millions): 1,087.44.
Year: 2004;
Total number of deals: 21;
Total deal value (dollars in millions): 5,159.64.
Year: 2005;
Total number of deals: 32;
Total deal value (dollars in millions): 8,188.06.
Year: 2006;
Total number of deals: 37;
Total deal value (dollars in millions): 18,298.37.
Year: 2007;
Total number of deals: 41;
Total deal value (dollars in millions): 52,935.24.
Year: 2008;
Total number of deals: ;
Total deal value (dollars in millions): 32,696.24.
[See PDF for image]
Source: GAO analysis of Dealogic data.
Note: The year 2008 covers all announced transactions as of June 1,
2008. Dealogic only reported transactions for 26 SWFs.
[End of figure]
However, these transactions, which have totaled about $119 billion
since 2000, represent a small portion of the overall reported assets of
SWFs, which, as noted previously, were estimated to be from $2.7
trillion to $3.2 trillion. This illustrates how much of the investment
held by SWFs is not generally identifiable in existing public sources,
unless SWFs themselves disclose comprehensive data on their asset
holdings.
Agency Comments:
We requested comments on a draft of this report from Treasury,
Commerce, and SEC. In a letter, Treasury's Deputy Assistant Secretary
for International Monetary and Financial Policy indicated that our
report was timely and valuable and underscored the importance of
developing a better appreciation of the systemic role of SWFs, and also
said that they generally agreed with the conclusions in the report. The
Deputy Assistant Secretary's letter stated that Treasury has been a
leader in the international community's efforts, including in the multi-
lateral IMF-facilitated effort to develop generally accepted principles
and practices for SWFs. Implementation of such practices will hopefully
foster a significant increase in the information provided by SWFs.
(Treasury's letter is reproduced in app. V.)
In Commerce's letter, the Undersecretary for Economic Affairs stated
that our report was a useful and timely contribution to the existing
literature on this highly debated and complex subject. (Commerce's
letter is reproduced in app. VI.) In SEC's letter, the Director of the
Office of International Affairs reiterated that the disclosure
requirements under U.S. securities laws regarding concentrations and
change of control transactions apply equally to SWFs and to other large
investors. (SEC's letter is presented in app. VII.) Treasury, Commerce
and SEC also provided technical comments, which we incorporated into
the report as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time we will send copies to other
interested Members of Congress; the Secretaries of Treasury and
Commerce; and the Commissioner of the SEC. We will also make copies
available at no charge on the GAO website at [hyperlink,
http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact either Yvonne Jones at (202) 512-8678 or JonesY@gao.gov, or
Loren Yager at (202) 512-4128 or YagerL@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix VIII.
Signed by:
Yvonne D. Jones:
Director, Financial Markets and Community Investment and Community
Investment:
Loren Yager:
Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives in this report were to examine (1) the availability of
data on the size of sovereign wealth funds (SWF) and their holdings
internationally that have been publicly reported by SWFs, their
governments, international organizations, or private organizations, and
(2) the availability of reported data by the U.S. government and other
sources on SWF investments in the United States. To identify SWFs and
to develop criteria for selecting the funds to include in our analysis,
we reviewed the definitions of SWF and the lists of such funds that
have been compiled by U.S. and international agencies, financial
services firms, and private researchers. The funds of most interest to
policymakers were those that are separate pools of capital without
underlying liabilities or obligations to make payments in the near
term. SWFs have raised concerns over their potential to use their
investments for non-economic purposes. As a result, we chose to include
in our analysis those funds that (1) were government chartered or
sponsored investment vehicles; (2) invested, in other than sovereign
debt, some or all of their assets outside the country that established
them; (3) were funded through transfers from their governments of funds
arising primarily from sovereign budget surpluses, trade surpluses,
central bank currency reserves, or revenues from the commodity wealth
of the countries, and (4) were not currently functioning as pension
funds receiving contributions from and making payments to individuals.
We included government-chartered or government-sponsored entities that
invest internationally because such entities raise concerns over
whether the controlling government will use their funds to make
investments to further national interests rather than to solely earn
financial returns. Entities that are funded primarily through trade
surpluses or natural resources wealth would also seem to be more
vulnerable to pressure to make noneconomic investments than entities
funded through employee contributions or other nonwindfall sources. We
excluded internationally active pension funds that are receiving
contributions from or making benefit payments to individuals as these
funds generally have specific liabilities, unlike SWFs that are not
encumbered by such near-term obligations, and thus are not as likely to
make noneconomic investments. We also excluded investment funds that
invested only in the sovereign debt of other nations. Such an
investment strategy is an approach that central banks have
traditionally taken and, although widely debated, has not generally
raised control issues. SWF investments in the equity securities of
commercial firms in other countries may be viewed as creating the
potential for actions of a noncommercial nature that could be
detrimental to another country's economy.
In order to determine our final list of SWFs, we independently examined
each fund on a compiled list of unique funds that others claimed were
SWFs. We verified that our above criteria were met using national
authorities and International Monetary Fund (IMF) data sources. To
begin our analysis, we reviewed lists of SWFs generated from seven
different private data sources and IMF. These sources, included in
publications from Deutsche Bank,[Footnote 47] Goldman Sachs,[Footnote
48] JPMorgan,[Footnote 49] Morgan Stanley,[Footnote 50] the Peterson
Institute,[Footnote 51] RGE Monitor,[Footnote 52] Standard Chartered
Bank,[Footnote 53] and IMF,[Footnote 54] were then used to prepare a
comprehensive list of 258 possible SWFs. Since the names of the funds
varied depending on the source, we manually matched the sources based
on the fund name, inception year, and fund size to obtain a list of 81
unique funds.
After compiling the list of unique funds, we attempted to verify the
extent to which the funds met our four criteria. We did this by having
at least two analysts reach agreement on whether the criteria were met
upon review of several data sources. We used official governmental
source data, such as information from the country's central bank,
finance ministry, or other government organization or from the fund's
Web site. If official government source information was unavailable, we
used the country's Article IV consultation report or other documents
reported to IMF as a secondary source. Those funds that did not meet
any one of our four specified criteria were excluded from our analysis.
In cases where we could verify some but not all of our criteria from
national authority or IMF sources, we attempted to validate the
remaining criteria using private or academic sources. Analyst judgment
to include or exclude a fund was employed in some cases where all
criteria could not be validated. Of the 48 funds selected for our
analysis, we were able to verify all four criteria in 60 percent of
cases. For all of the 48 funds we were able to verify two or more of
our four criteria using a mix of various sources.
We encountered some limitations to our independent verification of
national authorities' source data. These limitations include Web
searches only being conducted in English, Web sites being under
construction, and Web sites being incompletely translated from the
original source language to English. In these cases, we located
speakers of the languages in question and assisted them in conducting
searches for SWF information on the national government Web sites in
the country's language. If our team members who were knowledgeable of
the foreign language found relevant information, we asked them to
translate the information to English and provide us with a written
copy. We used this translated information to verify our criteria for 10
funds. Languages needing translation were Arabic, French, Portuguese,
and Spanish. If we found sources in English that were relevant for our
purposes, we did not review the sources in their original languages.
To determine the availability of data on the size and other
characteristics of SWFs that were reported by SWFs, their governments,
international organizations, or private sources, we reviewed documents
produced by SWFs and Web sites sponsored by SWFs. We also reviewed
studies of SWFs done by investment banks and private research firms.
For some recently established funds, we reported the initial
capitalization of the fund if the market value of the fund was not
available. We used a private researcher estimate for one fund that only
reported a minimum value and for two funds where private researcher
data appeared to be more recent than those of national authorities. We
interviewed officials from two SWFs, investment banks, finance and
trade associations, a private equity group, IMF, and others.
To determine the availability of data on SWF investments in the United
States reported by the U.S. government and others, we reviewed the
extent to which federal data collection efforts of the Departments of
the Treasury (Treasury) and Commerce (Commerce) and the Securities and
Exchange Commission (SEC) were able to report on SWF activities. We
interviewed officials from Commerce and Treasury, SEC, the Federal
Reserve Bank of New York, two financial data companies, a law firm,
several private researchers, and other organizations.
We analyzed data on SWF cross-border transactions in the United States
and other countries obtained from Dealogic, which designs, develops,
and markets a suite of software, communications, and analytical
products. We assessed the procedures that Dealogic uses to collect and
analyze data and determined that the data were sufficiently reliable
for our purposes. To identify the transactions, we worked with Dealogic
to develop a query that would extract all transactions with an SWF as
the acquirer of the asset and where the asset resided in a country
other than that of the SWF. However, Dealogic does not capture all SWF
transactions. Because of its reliance on public filings, news releases,
and relationships with investment banks, Dealogic may not capture low-
value transactions that are not reported publicly. We also reviewed
public filings, obtained through SEC's Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) database, of selected U.S. companies
that received major SWF investments in 2007 and 2008. Because
acquisitions resulting in total beneficial ownership of 5 percent or
less of a voting class of a Section 12 registered equity security will
not be reported to SEC, these data sources capture only a proportion of
the total U.S. SWF investments.
We also spoke with officials from the Board of Governors of the Federal
Reserve System, Commerce, the Department of Defense, the Department of
State, the Federal Reserve Bank of New York, Treasury, IMF, SEC, and
the U.S. Trade Representative. We attended hearings on SWFs before the
Senate Committee on Banking, Housing, and Urban Affairs, the Senate
Committee on Foreign Relations, the House Committee on Foreign Affairs,
and the House Committee on Financial Services, the Joint Economic
Committee, and the U.S.-China Economic and Security Review Commission.
We met with officials representing investment funds or SWFs from Dubai,
Norway, and Singapore. To better understand the context behind SWFs, we
interviewed industry and trade associations, a legal expert, investment
banks, private researchers, and others who have experience in
international finance, trade, and foreign investment issues.
We conducted this performance audit from December 2007 through August
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: SWFs Meeting GAO Criteria:
Figure:
This figure is a chart showing SWFs meeting GAO criteria.
[See PDF for image]
Source: GAO analysis of SWF-disseminated, IMF, and private researcher
data.
Notes: National authority data contain information from fund-specific
and government Web sites. The asset sizes of these funds were as of
various dates from 2003 through July 1, 2008.
The IMF data contain information from Article IV consultation reports,
IMF staff reports, and a memorandum of understanding. The date range
for the IMF data is from September 2006 through 2007.
Private researcher data contain information from reports from Deutsche
Bank, Goldman Sachs, JPMorgan, Morgan Stanley, the Peterson Institute,
Standard Chartered Bank, and RGE Monitor. The publication dates for
these reports range from September 10, 2007 through May 22, 2008.
For Gabon, Singapore, and Vietnam, private researcher estimates were
used instead of the national authority sources because the private
researchers appeared to provide more up-to-date estimates of the size
of the funds. São Tomé and Príncipe had a balance of $100 million as of
September 1, 2006. We report a zero balance due to rounding.
[End of figure]
[End of section]
Appendix III: Summary of SWF Investments in Financial Institutions:
In 2007 and early 2008, SWFs, in conjunction with other investors,
supplied almost $43 billion of capital to major financial firms in the
United States. Citigroup was the major recipient of capital, receiving
$20 billion in late 2007 and early 2008. The other recipients were
Merrill Lynch, Morgan Stanley, the Blackstone Group, and the Carlyle
Group. Below is a timeline of these transactions and their history.
Table 2: SWF Investments in Financial Institutions:
Announcement date: 5/20/2007;
Nature of announcement: Blackstone Group announces a $3 billion deal
with the China Investment Corporation;
Description: In addition to raising capital through their IPO, the
Blackstone Group sold to the China Investment Corporation 101,334,234
non-voting common units at a purchase price of $29.605 per unit on 6/
27/2007. The price was set to be 95.5 percent of the initial public
offering price. The number of shares issued was restricted so that the
fund's ownership interest would not exceed 10 percent at the time of
the transaction. The fund is required to hold the common stock units
for at least four years. Concurrently with this transaction, Blackstone
raised an additional $4 billion in capital with a public offering.
Announcement date: 9/20/2007;
Nature of announcement: Carlyle Group announces a $1.35 billion deal
with the Mubadala Development Company;
Description: As part of adding to their capital base and expanding
their business, the Carlyle Group entered a deal with the United Arab
Emirate's Mubadala Development Company for $1.35 billion. This
transaction granted the Mubadala Development Company a 7.5 percent
ownership percentage in the Carlyle Group. The ownership stake was
based on both parties' agreed-upon $20 billion valuation of the firm
with a liquidity discount of 10%. The rest of the firm's owners consist
of the Managing Directors at Carlyle and CalPERS, the California Public
Employees Retirement Systems, which owns approximately 5 percent.
Announcement date: 11/26/2007;
Nature of announcement: Citigroup announces a $7.5 billion deal with
the Abu Dhabi Investment Authority;
Description: As part of strengthening their capital base and expanding
their participation in alternative investments and emerging markets
financial services areas, Citigroup entered into a deal with the Abu
Dhabi Authority for $7.5 billion worth of Upper DECS equity units The
Equity Units consist of four series of trust preferred securities and
four series of forward purchase contracts to acquire Citigroup common
stock. Each Equity Unit will pay a fixed annual rate of 11 percent,
payable quarterly, consisting of a payment on each series of trust
preferred securities and a contract payment on the purchase contracts.
The common stock purchase contracts will settle on dates ranging from
March 15, 2010 to September 15, 2011 (Citigroup 10-K, p. 111). In
conjunction with this transaction, the SWF agreed not to own more than
a 4.9 percent ownership interest in Citigroup. In addition, they are
prohibited from selling their equity units until December 3, 2009.
Announcement date: 12/19/2007;
Nature of announcement: Morgan Stanley announces a $5.579 billion deal
with China Investment Corporation;
Description: Morgan Stanley entered into a transaction with the China
Investment Corp. for $5.579 billion of equity units. The equity units
consist of an undivided beneficial ownership interest in three series
of trust preferred securities. The interest rate on the equity units is
9 percent. China Investment Corp.'s ownership percentage is restricted
to 9.9 percent.
Announcement date: 12/24/2007;
Nature of announcement: Merrill Lynch announces a $6.2 billion deal
with Temasek Holdings and Davis Selected Advisors;
Description: As part of raising capital in order to strengthen the
firm's balance sheet, Merrill Lynch entered into a deal with
Singapore's Temasek Holdings and the United States' Davis Selected
Advisors for $5 billion and $1.2 billion respectively. Temasek Holdings
initially purchased 91.7 million shares of common stock for $48 per
share and then exercised its option to purchase at additional $600
million in common stock at the same price. According to the agreement,
Temasek's ownership position was required to be less than 10 percent
for a specified period of time. Meanwhile, Davis Selected Advisors
purchased 25 million shares at $48.
Announcement date: 1/15/2008;
Nature of announcement: Citigroup announces a $12.5 billion deal with
the Government of Singapore Investment Corp, the Kuwait Investment
Authority, Capital Research Global Investors, and other private
investors;
Description: In order to strengthen its capital base to allow it to
refocus on earnings and earnings growth, Citigroup issued a $12.5
billion private offering of 7 percent, Non-Cumulative Convertible
Preferred Securities. There is a six month restriction on the sale of
the preferred stock.
Announcement date: 1/15/2008;
Nature of announcement: Merrill Lynch announces a $6.6 billion deal
with the Korean Investment Corporation, Kuwait Investment Authority,
Mizuho Corporate Bank, and other private investors;
Description: As part of raising capital to strengthen its balance sheet
and increase its strategic opportunities around the world, Merrill
Lynch entered into a deal with a series of investors to sell an
aggregate of 66,000 shares of newly issued 9 percent Non-Voting
Mandatory Convertible Non-Cumulative Preferred Stock. The investors are
prohibited from selling the stock for 1 year after the transaction
close.
Source: GAO analysis of SEC filings and company press releases.
[End of table]
[End of section]
Appendix IV: Definitions and Lists of SWFs:
Some government organizations, an international financial institution,
investment banks, and private research organizations have published
reports on SWFs that offer explicit definitions of SWFs or lists of
SWFs. Those that propose definitions of SWFs have not come up with one
commonly accepted definition. Varying characteristics--ownership,
governance, funding sources, and investment strategies, among others--
are used to characterize SWFs and include or exclude funds from SWF
lists.[Footnote 55]
Treasury defines SWFs as government investment vehicles funded by
foreign exchange assets that are managed separately from official
reserves. They seek higher rates of return and may be invested in a
wider range of asset classes than traditional reserves. Treasury says
that SWFs generally fall into two categories based on the source of
their foreign exchange assets: commodity and noncommodity funds.
Treasury has not released a list of SWFs.[Footnote 56]
IMF defines SWFs as government-owned investment funds set up for a
variety of macroeconomic purposes. They are commonly funded by the
transfer of foreign exchange assets that are invested long term and
overseas. SWFs are a heterogeneous group and may serve multiple,
overlapping, and changing objectives over time: as stabilization funds
to insulate the budget and economy against commodity price swings; as
savings funds for future generations; as reserve investment
corporations established to increase the return on reserves; as
development funds to help fund socioeconomic projects or promote
industrial policies; or as contingent pension reserve funds to provide
for unspecified pension liabilities on the government's balance sheet.
IMF researchers have published a list of SWFs. This relatively broad
definition allows for inclusion of a Saudi Arabian investment fund
managed from the central bank.
Some investment bank reports have offered definitions of SWFs. One
states that SWFs are broadly defined as special government asset
management vehicles that invest public funds in a wide range of
financial instruments. Unlike central banks, which focus more on
liquidity and safekeeping of foreign reserves, most SWFs have the
mandate to enhance returns and are allowed to invest in riskier asset
classes, including equity and alternative assets, such as private
equity, property, hedge funds, and commodities. This bank does publish
a list of SWFs. It says that it is not always easy to differentiate
between pure SWFs and other forms of public funds, such as conventional
public sector pension funds or state-owned enterprises.[Footnote 57]
Another investment bank defines SWFs as having five characteristics:
(1) sovereign, (2) high foreign currency exposure, (3) no explicit
liabilities, (4) high-risk tolerance, and (5) long investment horizon.
Similar to SWFs are official reserves and sovereign pension
funds.[Footnote 58] Another investment bank says that SWFs are vehicles
owned by states that hold, manage, or administer public funds and
invest them in a wider range of assets of various kinds. SWFs are
mainly derived from excess liquidity in the public sector stemming from
government fiscal surpluses or from official reserves at central banks.
They are of two types--either stabilization funds to even out budgetary
and fiscal policies of a country or intergenerational funds that are
stores of wealth for future generations. SWFs are different from
pension funds, hedge funds, and private equity funds. SWFs are not
privately owned. This investment bank researcher does offer a list of
SWFs.[Footnote 59]
Some non-investment-bank private researcher reports have offered
definitions of SWFs. One researcher says that SWFs are a separate pool
of government owned or government-controlled assets that include some
international assets. The broadest definition of an SWF is a collection
of government-owned or government-controlled assets. Narrower
definitions may exclude government financial or nonfinancial
corporations, purely domestic assets, foreign exchange reserves, assets
owned or controlled by subnational governmental units, or some or all
government pension funds. This researcher includes all government
pension and nonpension funds to the extent that they manage marketable
assets. This researcher does publish a list of SWFs.[Footnote 60]
Another private research group defines an SWF as meeting three
criteria: (1) it is owned by a sovereign government; (2) it is managed
separately from funds administered by the sovereign government's
central bank, ministry of finance, or treasury; and (3) it invests in a
portfolio of financial assets of different classes and risk profiles,
including bonds, stocks, property, and alternative instruments, with a
significant portion of its assets under management invested in higher-
risk asset classes in foreign countries. This researcher thinks of SWFs
as part of a continuum of sovereign government investment vehicles that
runs along a spectrum of financial risk, from central banks as the most
conservative and risk averse, to traditional pension funds, to special
government funds, to SWFs, and finally to state-owned enterprises,
which are the least liquid and are the highest-risk investments. This
research group publishes a list of SWFs.[Footnote 61]
[End of section]
Appendix V: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington. D.C. 20020:
August 15, 2008:
Ms. Yvonne D. Jones:
Director, Financial Markets and Community Investment:
Government Accountability Office:
Dear Ms. Jones:
Thank you for the opportunity to comment on GAO's recent report
entitled "Sovereign Wealth Funds: Publicly Available Data on Sizes and
Investments for Some Funds are Limited." As the report highlights,
sovereign wealth funds (SWFs) represent a large and rapidly growing
stock of government-controlled assets, with significant implications
for the functioning of the international financial system. Thus, the
Treasury Department has been actively engaged on the macroeconomic,
financial market, and investment policy issues raised by SWFs for
nearly two years. The GAO's stock-taking exercise looking at available
data on SWFs—including both size of assets under management and
individual SWF investments—is both timely and valuable and underscores
the importance of developing a better appreciation of the systemic role
of SWFs. We welcome the exercise and we generally agree with the
conclusions reached in this report.
Sovereign wealth funds and recipient countries have a common interest
in preserving an open global investment climate and a smoothly
functioning international financial system. This requires strong
cooperation on both sides of the investment relationship. As
government- controlled entities seeking to benefit from healthy global
markets, SWFs have a strong stake in, and responsibility for,
international financial stability. Recipient countries benefit from
open investment and have a responsibility to maintain openness. In
particular, foreign investment in the United States strengthens our
economy, improves productivity, creates good jobs, and spurs healthy
competition. With these objectives in mind, the Treasury Department has
been a leader of the international community's efforts.
As a cornerstone of our policy response, Treasury proposed, and
strongly supports, the multilateral effort of the IMF-facilitated
International Working Group of SWFs (IWG) to develop a set of Generally
Accepted Principles and Practices for SWFs (GAPP). Implementation of
the GAPP by SWFs will foster a significant increase in the provision of
information by SWFs on their institutional and operational practices.
It will also promote sound practices in key areas such as institutional
arrangements, governance, and investment and risk management structure,
which will in turn help maintain an open and stable investment climate
globally. This multilateral effort was strongly reinforced by Secretary
Paulson's agreement with Singapore and Abu Dhabi in March 2008 on
policy principles for SWFs and countries receiving SWF investment.
The Treasury Department also strongly supports the OECD's work to
identify investment policy principles that should guide recipient
country policies toward SWF investment. The open investment principles
articulated by the OECD—non-discrimination, transparency,
predictability, accountability, and proportionality—are fully
consistent with the longstanding U.S. open investment policy. The
OECD's work in this area, taken together with the GAPP. demonstrates
that preserving an open global investment climate requires the
commitment of both SWFs and the countries that receive their
investment. We appreciate GAO's analysis and contribution to this
topic, and look forward to continued work with Congress on the
important issue of sovereign wealth funds.
Sincerely,
Signed by:
Mark Sobel:
Deputy Assistant Secretary:
International Monetary and Financial Policy:
[End of section]
Appendix VI: Comments from the Department of Commerce:
United States Department Of Commerce:
The Under Secretary for Economic Affairs:
Washington, D.C. 20230:
Dr. Loren Yager:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Dr. Yager:
Thank you for the opportunity to comment on the draft Government
Accountability Office (GAO) report entitled Sovereign Wealth Funds.
Publicly Available Data on Sues and Investments for Some Funds Are
Limited.
I find that the report is a useful and timely contribution to the
existing literature on this highly debated and complex subject. I have
enclosed comments from the Bureau of Economic Analysis relevant to
Commerce's efforts referenced in the draft report.
Sincerely,
Signed by:
Cynthia A. Glassman:
Enclosure:
[End of section]
Appendix VII: Comments from the U.S. Securities and Exchange
Commission:
Office Of International Affairs:
United States:
Securities And Exchange Commission:
Washington, D.C. 20549:
August 20, 2008:
Yvonne D. Jones:
Director:
Financial Markets and Community Investment:
US Government Accountability Office:
441 G Street, NW:
Room #2440B:
Washington, DC 20548:
Dear Ms. Jones:
Thank you for your e-mail dated 1 August 2008 and the opportunity to
comment on the draft report being prepared by GAO entitled Sovereign
Wealth Funds: Publicly Available Data on Sizes and Investments for Some
Funds are Limited (GAO 08-946). Attached for your review are our
technical comments to the draft report.
As you know, during the preparation of the draft report, we had the
opportunity to meet with you and other members of your office to
discuss the SEC's disclosure requirements that may apply to Sovereign
Wealth Funds ("SWFs"). In that connection, it is worth reiterating
that, in general, disclosure requirements under US securities laws
regarding concentrations and change of control transactions apply
equally to SWFs and to other large investors.
We appreciate the opportunity to provide comments on the draft report.
If you have any questions, please contact me at (202) 551- 6690.
With best regards,
Signed by:
Ethiopis Tafara
Director:
[End of section]
Appendix VIII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Yvonne D. Jones, (202) 512-8678 or jonesy@gao.gov Loren Yager, (202)
512-4128 or yagerl@gao.gov:
Acknowledgments:
In addition to the contacts named above, Cody Goebel, Assistant
Director; Celia Thomas, Assistant Director; Patrick Dynes; Nina
Horowitz; Richard Krashevski; Jessica Mailey ; Michael Maslowski; Marc
Molino; Omyra Ramsingh; and Jeremy Schwartz made major contributions to
this report.
[End of section]
Footnotes:
[1] The investment of government assets may take various forms. For the
purposes of this report, "sovereign wealth fund" and "fund" refer to a
legal entity chartered by a government that holds and invests the
government assets.
[2] For certain foreign direct investments that raise national security
considerations, the United States has a formal, interagency process
known as the Committee on Foreign Investment in the United States
(CFIUS). CFIUS is comprised of the heads of 16 government agencies or
offices including the Department of Defense, the Department of Homeland
Security, and the Department of State, with the Department of the
Treasury serving as chair. CFIUS reviews, on a case-by-case basis,
certain mergers, acquisitions, or takeovers that could result in
foreign control of a U.S. business, some of which involve foreign
government control. GAO has previously reported on CFIUS. See GAO,
Defense Trade: Enhancements to the Implementation of Exon-Florio Could
Strengthen the Law's Effectiveness, GAO-05-686 (Washington, D.C.: Sept
28, 2005). Also, see GAO, Foreign Investment: Laws and Policies
Regulating Foreign Investment in 10 Countries, GAO-08-320 (Washington,
D.C.: Feb. 28, 2008).
[3] For more information on key SWF definitions and their rationales,
see app. IV. Naming conventions of the various SWFs can add to the lack
of clarity. For example, some SWFs have "pension" in their names, yet
they do not operate as pension funds.
[4] International reserves are assets available for financing
international payments that are controlled by finance ministries and
central banks. Such reserves can be used to cushion an export shortfall
or defend the home currency in a financial crisis. See Robert M.
Kimmitt, "Public Footprints in Private Markets: Sovereign Wealth Funds
and the World Economy," Foreign Affairs, vol. 87, no. 1 (2008).
[5] One major commodity, oil, is predominately priced in U.S. dollars.
[6] The current account balance is a summary measure of a country's net
balance over a period of time with all other countries in the value of
its trade of goods and services, income from returns on investments
abroad, and unrequited transfers (such as foreign aid payments and
workers' remittances). The balance of trade in goods and services is a
subset of the current account balance.
[7] The 2007 current account balance consisted, among other items, of a
deficit in the balance of trade in goods of $815.4 billion and a
surplus in the balance of trade in services--such as financial,
insurance, transportation, and business services--of $106.9 billion.
[8] The annual weighted world average price per barrel is calculated by
averaging the week-ending price from each week during a particular
year. See Department of Energy, Energy Information Administration,
"World Crude Oil Prices," Weekly Petroleum Status Report, July 11,
2008, [hyperlink,
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_pe
troleum_status_report/historical/2008/2008_07_16/wpsr_2008_07_16.html]
(accessed Aug. 20, 2008).
[9] See Exec. Order No. 11,858, 3 C.F.R. 990 (1971-1975), as amended.
President Ford established CFIUS and charged the interagency committee
with primary responsibility within the executive branch for monitoring
the impact of foreign investments in the United States.
[10] Defense Production Act, ch. 932, Title VII, § 721 (Sept. 8, 1950),
as added by Pub. L. No. 100-418, Title V, § 5021, 102 Stat. 1425 (Aug.
23,1988) (codified, as amended, at 50 U.S.C. App. § 2170).
[11] See Pub. L. No. 110-418, § 3, 121 Stat. 246, 252 (July 26, 2007)
(amending section 721 of the Defense Production Act).
[12] 50 U.S.C. App. § 2170 (b)(as added by Pub. L. No. 110-418, § 2,
121 Stat. at 247-49).
[13] See app. I for a description of our criteria.
[14] One other fund that was recently established has not yet published
the results of its first audit.
[15] Three funds do not disseminate information over Web sites. These
include funds in Angola, Libya, and São Tomé and Príncipe. However,
these funds do disseminate information through IMF.
[16] Information, observations, and conclusions regarding foreign laws
mentioned in this report do not reflect our independent legal analysis
but are based on our interviews and documentation available on SWF or
foreign government Web sites.
[17] See, generally 17 C.F.R. §§ 270.30b-2 and 270.30b1-5 (2008) and
SEC Forms N-SAR and N-Q.
[18] This information is published in a report of the IMF Committee on
Balance of Payments Statistics 07/06 (available at [hyperlink,
http://www.imf.org/external/pubs/ft/bop/2007/20.htm]). The IMF
Committee on Balance of Payments Statistics was established by IMF's
Executive Board to improve the availability, consistency, and
reliability of balance of payments and international investment
position statistics worldwide and is supporting IMF's efforts to find
out more about the treatment of SWFs in statistical data sets.
[19] IMF does not publicly release Article IV consultation reports if
the member country requests that it not do so. For Bahrain, Brunei, and
Malaysia, we reviewed the publicly available summaries of their Article
IV consultation reports. In addition, Venezuela does not have a
publicly available Article IV consultation report or summary.
[20] For 2 of the 34, the countries' SWF was established after the
Article IV consultation.
[21] IMF, in response to Group of Seven requests, has facilitated and
coordinated multilateral discussions focused on developing best
practices for SWFs. The international working group, including the
United States, most recently met in July 2008 for deliberation, and has
stated its goal of establishing voluntary principles and practices by
October 2008. In September 2008, an IMF official announced that
representatives from 26 SWF countries had reached preliminary agreement
on a draft set of principles. For press releases of the International
Working Group of Sovereign Wealth Funds, see [hyperlink, http://www.iwg-
swf.org/pr.htm].
[22] Based on our review of publicly available information from the
World Bank, we found that this organization is not collecting and
reporting data on SWFs. Experts we spoke to with at IMF told us that
the World Bank is not collecting SWF data. Also, searches of the Web
sites of these organizations resulted largely in SWF-related news
articles. We did not find information pertaining to current or future
plans to collect SWF data or conduct other policy work on SWFs.
[23] One research institute estimated that assets in SWFs will be as
high as $30 trillion by 2018.
[24] Pub. L. No. 94-472, 90 Stat. 2059 (Oct. 11, 1976) (codified, as
amended, at 22 U.S.C. §§ 3101 - 3108). The President has delegated the
authority granted under the International Investment Survey Act as it
relates to the collection, analysis and reporting of information (1) to
Treasury with respect to portfolio investment, and (2) to the Secretary
of Commerce, who has redelegated it to BEA, with respect to foreign
direct investment. See Exec. Order N. 11961, 3 C.F.R. 86 (1977), as
amended.
[25] 22 U.S.C. § 3103(b).
[26] See 15 C.F.R. pts. 801 and 806 (2007). BEA also collects
information on international investments by U.S. persons abroad.
[27] See generally 15 C.F.R. pts. 806 (2007). In benchmark years--every
5 years--BEA surveys about 6,000 companies regarding foreign ownership;
in nonbenchmark years, it surveys a smaller number. The last benchmark
survey covered 2002 and the 2007 benchmark survey is in process.
[28] See 31 C.F.R. Parts 128 and 129 (2007). Other U.S. agencies may
also obtain information on investments by foreign entities in certain
U.S. assets, and such information may or may not be publicly available.
For example, the Agricultural Foreign Investment Disclosure Act
requires foreign investors that acquire, transfer, or hold an interest
in U.S. agricultural land to report such holdings and transactions to
the Secretary of Agriculture. See Pub. L. No. 95-460 (Oct. 14, 1978)
(codified as amended at 7 U.S.C. §§ 3501 et seq.) We plan to discuss
this and other laws that may require disclosure of individual foreign
investment transactions in a subsequent report.
[29] Treasury's surveys are sent to commercial banks and other
depository institutions, bank holding companies, securities brokers and
dealers, custodians of securities, and nonbanking enterprises in the
United States, including the U.S. branches, agencies, and subsidiaries
of foreign-based banks and business enterprises. See, generally, 31
C.F.R. pts. 128 and 129 (2007).
[30] Foreign residents include individuals or entities with physical
locations outside the United States and also international
organizations and embassies located inside the United States. Foreign
official institutions include central government entities, such as
central banks, finance ministries, and government investment funds.
[31] Under section 5(c) of the International Investment Survey Act,
only officials or employees designated to perform functions under the
act are entitled to access to information obtained from filed reports.
In addition, no person can compel the disclosure of any portion of a
report filed under the act without the prior written consent of the
person who maintained or furnished the report and without the prior
written consent of any other person who may be identifiable from the
information contained in the report. See 22 U.S.C. § 3104(c).
[32] Any person who willfully violates the confidentiality provisions
of the International Investment Survey Act by making an unauthorized or
improper disclosure of information furnished under the act is subject
to a fine of up to $10,000, in addition to any other penalty imposed by
law. 22 U.S.C. §3104(e).
[33] The data that include most SWF investment in the U.S. investment
position are derived from BEA's data on foreign direct investment and
Treasury's monthly and annual data on portfolio transactions and
holdings of U.S. assets.
[34] Data on international investment position in the United States at
year-end for 2007 are preliminary as of the time of this report.
[35] These securities are long term, that is, they have no contractual
maturities (stocks) or have maturities of more than 1 year.
[36] Country breakouts of foreign direct investment are reported on an
historical (book) value basis. Entries are suppressed if the identity
of an U.S. reporter would be revealed through reporting.
[37] Treasury also reports portfolio investment by country, but
aggregates both the foreign official and private investment data
because in some countries only one organization may conduct
international investing, thus any official institution data reported
for such countries would reveal information about individual investors,
which Treasury is legally prohibited from doing.
[38] See 22 U.S.C. § 3104.
[39] See 22 U.S.C. § 3103(g), which requires that the President "give
due regard to the costs incurred by persons supplying such information,
as well as to the costs incurred by the Government."
[40] See Securities Exchange Act of 1934, § 13(d) and (g) [codified, as
amended, at 15 U.S.C. § 77m(d) and (g)]; see also SEC Regulation 13D
[codified at 17 C.F.R. §§ 240.13d-1 - 240.13d-102 (2007)]. Beneficial
owners of greater than five percent of an outstanding class of equity
securities registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934 are required to disclose the required
information on a Schedule 13D. A Schedule 13D must be filed within 10
days of becoming a beneficial owner of greater than 5 percent of a
voting class of Section 12 registered equity securities. Certain
investors, however, may be eligible to file a short-form disclosure
statement on Schedule 13G.
[41] The less detailed filing is provided in the form of Schedule 13G.
This disclosure statement is more abbreviated than Schedule 13D and
generally is required to be filed in as few as 10 days following the
acquisition or as many as 45 days after the end of the calendar year in
which the investor became a beneficial owner of greater than 5 percent
of a voting class of an issuer's Section 12 registered equity
securities.
[42] Securities Exchange Act § 16(a) [codified as amended at 15 U.S.C.
§ 78p(a)]; 17 C.F.R. §§ 240.16a-1 et seq. The disclosure requirements
of Section 16(a) also apply to officers and directors of the issuer of
the subject securities.
[43] Under federal securities laws, public companies are required to
disclose "on a rapid and current basis" material information regarding
changes in their financial condition or operations. This is most often
accomplished through the filing of a current report--known as Form 8-K-
-or included information in their annual report--Form 10-K.
[44] Some transactions included other investors that are not SWFs;
however, their stake could not be identified.
[45] Similar information on these large investments in U.S. companies
could also be found in SEC filings, either through filings made by the
SWF as investor, where the investment resulted in the investor owning
more than 5 percent of a class of the company's equity securities
(Schedule 13D), or disclosed by the target company in filings required
to announce a material event (Form 8-K).
[46] Dealogic reports no announced cross-border investments involving
SWFs in the United States from 2000 through 2004.
[47] Steffen Kern "Sovereign Wealth Funds--State Investments on the
Rise," Deutsche Bank Research (Frankfurt am Main, Germany: Sept. 10,
2007). Also available online at [hyperlink, http://www.dbresearch.com]
(accessed Aug. 22, 2008).
[48] Jim O'Neill, Erik F. Nielsen, and Saleem Bahaj. "In Defense of
Sovereign Wealth Funds," GS Global Economics Research, [hyperlink,
https://portal.gs.com] (accessed May 21, 2008).
[49] David G. Fernandez David G. and Bernhard Eschweiler. "Sovereign
Wealth Funds: A Bottom-up Primer." JPMorgan Research (Singapore: May
22, 2008).
[50] Stephen Jen, "Sovereign Wealth Funds and Official FX Reserves."
Morgan Stanley Research Global (London: Sept. 14, 2006).
[51] Edwin M. Truman, "A Blueprint for Sovereign Wealth Fund Best
Practices," Policy Brief, 08-3, Peterson Institute for International
Economics (Washington, D.C.: April 2008). Also available online at
[hyperlink,
http://www.petersoninstitute.org/publications/interstitial.cfm?ResearchI
D=902] (accessed Aug. 22, 2008).
[52] Brad Setser and Rachel Ziemba, Understanding the New Financial
Superpower--The Management of GCC Official Foreign Assets, RGE Monitor
(New York: December 2007). Also available online at [hyperlink,
http://www.cfr.org/publication/15206/understanding_the_new_financial_sup
erpower_the_management_of_gcc_official_foreign_assets.html] (accessed
Aug. 22, 2008).
[53] Gerard Lyons, State Capitalism: The Rise of Sovereign Wealth
Funds, Standard Chartered Bank (London: Oct. 15, 2007).
[54] Statistics Department of the International Monetary Fund,
Sovereign Wealth Fund and Reserve Assets: A Statistical Perspective,
Paper Presented at the Twentieth Meeting of the IMF Committee on
Balance of Payments Statistics (Washington, D.C., Oct. 29 through Nov.
1, 2007).
[55] Naming conventions of the various SWFs can add to the lack of
clarity. For example, some have "pension" in their names, yet they do
not operate as pension funds.
[56] Department of the Treasury, "Sovereign Wealth Funds," in Report to
Congress on International Economic and Exchange Rate Policies
(Washington, D.C.: June 2007).
[57] David G. Fernandez and Barnhard Eschweiler, "Sovereign Wealth
Funds: A Bottom-up Primer," JPMorgan Research (Singapore: May 22,
2008).
[58] Stephen Jen, "Currencies: The Definition of a Sovereign Wealth
Fund," Morgan Stanley Research Global (London: Oct. 25, 2007).
[59] Kern, "Sovereign Wealth Funds--State Investments on the Rise."
[60] Edwin M. Truman, "The Rise of Sovereign Wealth Funds: Impacts on
U.S. Foreign Policy and Economic Interests," Testimony (Washington,
D.C.: May 21, 2008).
[61] William Mirachy et al., Assessing the Risks: The Behavior of
Sovereign Wealth Funds in the Global Economy, (Cambridge, Mass: Monitor
Group, June 2008).
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office:
441 G Street NW, Room LM:
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548: