Sovereign Wealth Funds: Publicly Available Data on Sizes and Investments for Some Funds Are Limited
Published: 2008-09-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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.
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. 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.
subsections: section_title: Background
paragraphs: 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.
subsections: section_title: Countries with SWFs Are Accumulating Large Foreign Currency Reserves
paragraphs: Countries that are major exporting nations or natural resource providers  may accumulate large amounts of foreign currency reserves through the  sale of their manufactured goods or natural resources to other nations.  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. 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 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).
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.
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). 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.
section_title: United States Reviews Some Foreign Investments
paragraphs: 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. 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. 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. 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.  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.
section_title: Extent of Official Data from SWF Countries and Others on SWF Sizes and Investments Varies
paragraphs: 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.
subsections: section_title: SWFs Exist in Most Regions of the World and Many Are Recently Created
paragraphs: 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. 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).
section_title: The Amount and Type of Information SWFs Report about Their Characteristics and Activities Vary by Fund
paragraphs: 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. 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.
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. 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.  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.
section_title: International Organizations’ Data Collections Do Not Generally Obtain Information on SWF Size or Investments
paragraphs: 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.
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. 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. 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. 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. 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.
section_title: Private Researchers Have Collected Some Information on SWFs
paragraphs: 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.
section_title: Total SWF Assets Are Currently Smaller Than Those Held by Other Large Investor Classes but Are Expected to Grow
paragraphs: 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. 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.
section_title: Public Information from the U.S. Government and Others on SWF Investments in U.S. Assets Is Limited
paragraphs: 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.
subsections: section_title: U.S. Government Reports Aggregate Totals for Foreign Investment in the United States but Do Not Specifically Identify SWF Activities
paragraphs: 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. 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. 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. 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. 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.  Treasury collects the data through surveys of U.S. financial institutions  and others. These surveys collect data on ownership of U.S. assets by  foreign residents and foreign official institutions. 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.
subsections: section_title: Data Collected by U.S. Agencies Show Considerable Foreign Investment in United States, but Do Not Identify SWF Activity
paragraphs: 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. 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.  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.
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. 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. 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.”
section_title: BEA and Treasury Data Show That Investment from Countries with SWFs and from Official Institutions Is Increasing
paragraphs: 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. 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.
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. 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.
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.  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. 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.
section_title: Some Information on Specific SWF Investments in the United States Is Available from SWF Disclosures and Private Sources
paragraphs: 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.
subsections: section_title: Specific SWF Investments Are Disclosed in U.S. Securities Filings
paragraphs: 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. 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.
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.
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. 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.
section_title: Private Data Collection Entities Compile and Report Information on SWF Investments in the United States but Do Not Capture All Activity
paragraphs: 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. These deals comprised 8 of the top 10 announced SWF  investments in the United States since 2000 (see table 1).
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).
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. 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.
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.
section_title: Agency Comments
paragraphs: 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 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.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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, Goldman Sachs, JPMorgan, Morgan Stanley, the  Peterson Institute, RGE Monitor, Standard Chartered Bank, and IMF,  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.
section_title: Appendix II: SWFs Meeting GAO Criteria
paragraphs: odSize of fund (doll in illion)
Government Penion Fnd--GlobaKit Invetment Athority (KIA)
Size of fund (dollar in billion)
Severnce Tx Permnent Fnd (New Mexico)
Permnent Minerl Trust Fnd (Wyoming)
Fond de Genertion (Qec)
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, 200.
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.
section_title: Appendix III: Summary of SWF Investments in Financial Institutions
paragraphs: 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.
section_title: Appendix IV: Definitions and Lists of SWFs
paragraphs: 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.
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.
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. 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.  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.
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. 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.
section_title: Appendix V: Comments from the Department of the Treasury
section_title: Appendix VI: Comments from the Department of Commerce
section_title: Appendix VII: Comments from the U.S. Securities and Exchange Commission
section_title: Appendix VIII: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: 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.