financial stability. as a public institution, an swf should disclose a minimum set of information because of its fiduciary responsibility. over the recent past, public institutions have responded more and more favourably to the arguments in favour of transparency. in particular, the benefits of greater accountability and the benchmarking of sovereign institutions tend to outweigh arguments in favour of secrecy. for instance, most central banks nowadays report their fx reserves holdings to the imf under the sdds and publish a detailed annual report. the central bank gold agreement also provides a striking example of where central bank transparency ex ante and ex post has had significant benefits in preventing market disturbances, in the patrimonial interest of its participants. a similar level of transparency could therefore be extended to swfs, for their own benefit. some of them have already adopted such good practices : the norwegian government pension fund is widely recognised as a model in that respect : it provides detailed information about its asset allocation, its quarterly results and its investment policy on its website. more generally, public pension funds typically set a useful example. for instance, the french fonds de reserve pour les retraites also endeavours to ensure transparency and accountability. from the perspective of financial market stability, a lack of information regarding swf holdings and strategies can contribute to herd behaviours, with a potentially very negative impact on financial markets dynamics. with that overriding concern in mind, a code of conduct would be welcome, which could be designed within international fora ( for instance under the aegis of the world bank or the imf ), in order to establish minimum requirements regarding adequate information disclosure. further progress in that field would greatly alleviate concerns over risks of capital misallocation as well as possible negative macroeconomic and financial market externalities of large foreign asset management.

equity risk premium. estimates of these effects must however be interpreted with caution : they rely on fragile assumptions, amounting to an equivalency between the development of risky sovereign holdings and a lasting decline in global risk aversion. before jumping to such a conclusion, one should keep in mind that if private savings had not been warnock, f. and warnock, v. ( 2006 ) - international capital flows and u. s. interest rates, nber working paper. intermediated in public balance sheets, they might as well have been invested directly in risky assets. yet the impact of swf investments on some small and illiquid financial markets, such as gold, commodities and real estate might be high. to the extent that swfs attempt to hedge macroeconomic risks for their country, difficulties could arise insofar as the best existing hedging instruments may be less liquid than bonds and equities. the risk of a potentially disruptive impact on asset price dynamics should then be acknowledged for large swfs, as underlined by the 2007 imf global financial stability report. investment criteria by their very nature, the criteria used for sovereign portfolio strategic asset allocation are not exclusively related to value - enhancing considerations, but may also encompass other policy objectives. among the main non - financial criteria, ethical and environmental concerns are sometimes put forward. the norwegian government pension fund, for instance, established in 2004 its “ ethical guidelines ”, excluding investments in weapons production industries or polluting sectors. strategic or industrial goals can also be pursued, such as facilitating the access of domestic firms to new foreign technologies, or more generally bolstering national industries. one such example is provided by the new chinese state investment company, which could possibly use a large fraction of its assets to recapitalise the chinese banking sector. in a word, sovereigns are also in charge of economic policy and it is intrinsically difficult for them to maintain schizophrenia between their actions as policy - makers and their decisions as managers of public assets. the strategic allocation of their risky assets can therefore be expected to be used, in some cases, as another policy instrument. given these specificities of sovereign holdings of risky assets, it is legitimate to wonder whether the growth of these holdings raises new challenges for central banks and the international community. transparency i will conclude on the issue of the appropriate transparency level for swfs. should swfs be more transparent than other institutional investors? this question must be addressed from two different perspectives : accountability and