The underlying concern in the debate about sovereign wealth funds seems to be the fear that some governments might use their financial power to build strategic advantages. However, a far more challenging issue is how the huge increase in financial assets managed by potentially non-economic agents will affect the efficiency of the global capital market and the allocation of risk and resources.

Particular regulations for SWFs would be a step in the wrong direction. Instead, we should discuss what conditions are needed for the professional management of publicly owned financial assets. The free flow of capital contributes to efficient allocation of risk and resources. Regulation of SWFs risks creating inefficiency by curbing market forces at a time when we need to strengthen both the power and the professionalism of capital owners.