Q&A with Thomas Karol of the Sovereign Investment Council

By Ashby Monk

This blog is a source of open discussion and engagement on the topic of SWFs. As such, we welcome and indeed seek out all views and opinions on the subject. Today, we are introducing the first of what will hopefully become a routine segment: “Q&A with a SWF expert, stakeholder or policymaker”. We are pleased to welcome Thomas Karol of the Sovereign Investment Council. While Mr. Karol’s views are his own, his perspective helps to further debate and facilitate understanding.

Ashby Monk: Tom, what is the purpose of the Sovereign Investment Council?

Thomas Karol: The Sovereign Investment Council (‘SIC’), based in Washington, DC, is an advocacy, communications and research center established to develop, analyze and distribute information about Sovereign Investors and their contributions to the national and global economies. Sovereign investors have not risen to address the chorus of fears voiced in Washington over the past year, resulting in numerous Congressional hearings and calls for action. As EU trade commissioner Peter Mandelson has said, the funds risk getting the facts right and the politics wrong. The SIC is working to ensure that the facts are better known and the politics better managed.

Ashby Monk: Why do sovereign wealth funds need a lobbyist?

Thomas Karol: Some SWFs have hired major lobbyists in DC to meet their own needs, at great expense to the funds and – as we have heard from many members of Congress – with little real impact. It is fairly unrealistic in today’s climate to expect any one fund to get any special treatment in Washington, as any anticipated regulatory or legislative action will address all SWFs equally. The SIC is not representing any single SWF, but rather is working to be the trade association for sovereign investors, to promote public understanding, and otherwise advance the interests of sovereign investors and their advisers.

Ashby Monk: What are the primary issues of concern among US policymakers with respect to SWFs? How can these issues be overcome?

Thomas Karol: The primary issue of concern among US policymakers is the unsupported fear that SWFs may operate to advance political motives, rather than economic investment goals. The size and growth of SWFs – particularly in nations with fewer ties to the United States – and their relative lack of transparency feed fears that SWFs can take over US businesses, manipulate financial markets and steal technology and other national security assets. The first step in addressing these fears is to better educate US policymakers and to provide more information about how SWFs can and do operate.

Ashby Monk: Is mutual understanding and communication the key to SWF legitimation?

Thomas Karol: There seems to be a growing level of polarization between SWFs and investment receiving countries, which advances the interests of neither. There are complex issues of national pride and changing global economics that can only be addressed by education and communication. That is the central focus of our efforts. Anyone interested in more information can check out our website and contact me directly.

Ashby Monk: In your experience, are SWFs effective at communicating with investment receiving countries?

Thomas Karol: Many SWFs are beginning to see the real value of communicating with investment receiving countries, as well as companies in which investments are sought. Several have hired communications professionals, revamped websites and begun more discussions with media. While this is positive at an individual fund level, we believe that a great deal more needs to be done at the SWF industry level. Policy makers and opinion leaders tend to take the industry as a whole and may take actions based upon their worst fears.

Ashby Monk: Take us out ten years, where do you see the current crisis of legitimacy facing certain SWFs?

Thomas Karol: Crystal ball gazing is always dangerous, but I do think it is clear that there will be far more funds in ten years and the predicted $12 trillion in SWF assets will be surpassed. I think that SWFs and regulators will take steps back and explore more market based solutions that permit investment without the fear factors. There is always the potential for misuse and abuse by some SWFs, but we anticipate sovereign investors becoming a far more mainstream part of the financial community. Mostly, I think that there will be more market based, commercial solutions to the present issues and the SIC is focused on promoting such solutions.

Ashby Monk: Thanks, Tom, for taking the time speak with us today.

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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