Guest Blog: Who owns SWFs?

Angela Cummine

You could not be blamed for wondering why we need a blog post dedicated to SWF ownership.  This is one aspect of the burgeoning SWF debate that may be considered fairly settled.  Everyone knows these entities are government owned. The funds described themselves as such in the Santiago Principles, defining SWFs as entities ‘owned by general government’. Academia, industry analysts and policy commentators echo this definition ad nauseam but with a little variety, referring to SWFs as ‘state-owned’, ‘government-owned’ or owned by ‘the nation’ in which they reside.  To a political scientist, the terms ‘state’, ‘government’ and ‘nation’ are all distinct concepts, referring to unique entities.  In the SWF debate, there is a sense that all these terms are used synonymously, as proxies for a more abstract idea of public ownership.  Case closed.

But things are not so simple.  Despite the apparent ‘public ownership’ consensus, it is often not clear in what way the public of a given host country ‘owns’ its SWF.  If we adopt the Santiago Principle position – that SWFs are ‘owned by the general government’ – then does this mean the executive apparatus of the state owns these funds? Is this something different from state ownership?  And where a fund is set up using resource wealth and the citizens of a nation are considered the ultimate owners of those resources, how does this ownership claim interact with that of a host government’s claim to be the legally recognized owner of a SWF?  Do citizens have a trumping right to this wealth over governments? Or are they one in the same claim?

In case this is all too philosophical, we can use a real world example to illustrate how the distinctions play out.  The Australian Future Fund was set up using trade surpluses derived from resource windfalls. The funds are set aside until 2020, at which point they may be drawn down to meet unfunded public pension liabilities of Commonwealth public servants.  In other words, one particular government – the Federal government (as opposed to the eight state and territory governments) – used national resource windfalls to discharge its liabilities as an employer.  But what if the Future Fund was considered to be ‘state-owned’ as opposed to government owned?  Would these funds have to be invested in a manner that would benefit the state as a continuous entity, for instance by investing in national infrastructure or the national welfare system, rather than a particular government who will face these fiscal challenges?  Alternatively, if Australian citizens are seen as the ultimate owners of the resources which produced these windfalls – and there is a growing chorus of business and political leaders in Australia who refer to Australian minerals as the people’s property in order to justify the establishment of a Future Savings fund – then should this money be prioritized for distribution to individuals through tax relief or dividends?

As part of the recently reignited debate in Australia on whether to set up a dedicated Resources savings Fund, comments by the head of Australia’s Commonwealth Bank, Ralph Norris, highlight the different potential beneficiaries of SWF ownership:

”Mining companies are recovering resources that are the natural endowment of Australians, and therefore Australia … should look to get some return.”

The comment includes an explicit reference to citizen’s owning natural resources, and an implicit inference that in the absence of an SWF for resource windfall, the government of the day (as opposed to the nation Australia) is unfairly reaping the windfall benefits.

Of course, if we consider ‘government’ to be the agent of the people, then the conundrum is diluted.  If what is meant when we say something is government owned is that it is actually the property of citizens, either individually or collectively and that governments simply hold these funds on trust for the citizenry, their principal, then recognizing that resources are the property of the people and that SWFs holding resource wealth are ‘government owned’ presents no dilemma.  Use of this capital by government to help do its job efficiently is ultimately government acting in the people’s best interest.  The resource capital is being used to benefit the citizenry.

If only it were that straight-forward. For a start, it is not the case that when we think of government, it simply boils down to the sum of its parts. Government, in its most intuitive sense, is of course a representative institution of ‘the people’.  But anyone familiar with institutional theory knows that institutions regularly take on a set of interests distinct from those of its founding members whose interests it is supposed to further – sometimes referred to as institutional dysfunction.  Government as an institution regularly conducts affairs that could be more easily understood as representing its own interests as a principal. It has overheads and responsibilities that attach to it which may require consideration of its institutional interest distinct from the public interest.  It has concerns as an employer, contractor and financial entity that may be formed with little regard to the people it represents. We can therefore consider government as a unique, stand alone entity separate from its core identity as the representative of the people.

For this reason, we know it means something in particular to say a fund is government-owned.  But what exactly is meant is not clear.  As more demands are made on how SWFs should distribute their capital, it will be vital to clarify precisely what is meant by government in the SWF ownership context. 

Angela Cummine is a doctoral candidate at the University of Oxford.

8 Responses to “Guest Blog: Who owns SWFs?”

  1. 1 don February 25, 2011 at 3:06 pm

    america’s swf is called the u.s. treasury. is it this simple?

  2. 2 Peter February 25, 2011 at 8:46 pm

    This becomes more relevant and obviously important given the recent Middle East turmoil. If the sovereign government is not really representative of the people, and suddenly changes, what happens to these assets in SWF? What is to prevent a departing ‘national’ leader from misusing the assets in a way to benefit himself in the waning moments of his twilight? Even in a conflicted way that also benefits the people ina short-term manner; for example, he offers some kind of ‘stimulus’ payment of $1000 per head to the entire populace to buy their loyalty. This may be good for the individual persons who compose the nation’s people, but not good for the nation in the longer term.

  3. 3 Wildebeest September 7, 2011 at 5:30 pm

    I was under the impression that the Future Fund was set up via an asset transfer, i.e. government held assets such as shares in Telstra were transferred to the Future Fund.

    SWF advocacy in Australia seems to ignore the small contribution to GDP if Australia’s resources sector, relative to the resource sectors of other SWF nations such as Norway and even Chile. Advocates also ignore that the large “successful” SWFs come from countries that run current account surpluses. There are sound reasons why a current account surplus should be a pre-requisite:


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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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