Originally from Investment Treaty Arbitration and International Law - Volume 18

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I. INTRODUCTION

In the dynamic arena of international finance, sovereign wealth funds (SWFs) have risen to prominence as key actors influencing global investment flows and economic stability. SWFs were initially established by states to manage surplus revenue from resources like oil and gas. Over the years, these funds have evolved into major players in global investment.  Today, they are not merely passive holders of wealth but active investors seeking to diversify their portfolios across a wide spectrum of foreign assets. The ten most prominent sovereign wealth funds collectively manage assets exceeding US $9 trillion, a testament to their formidable presence in global markets.

This paper critically examines whether SWFs should be afforded protections within the framework of international investment agreements (IIAs), exploring the legal implications, challenges, and potential reforms necessary to address the unique dual nature of these entities as both state-linked actors and commercial investors.

This monumental growth of SWFs has been accompanied by a significant shift in their investment strategies. No longer confined to conservative investments in traditional sectors, SWFs are venturing into diverse industries, including technology, telecommunications, healthcare, and finance. Their capital injections have at times played a stabilizing role in global economic downturns, such as during the financial crisis of the late 2000s. These moves underscored the capacity of SWFs to act as stabilizing forces during turbulent times, providing much-needed liquidity when market sentiment was overwhelmingly pessimistic. With their growing presence and influence in strategic sectors, SWFs present unique legal challenges, particularly in the realm of IIAs.