In 2007 China set up its sovereign wealth fund, the China Investment Corporation, with an initial capital fund of $200 billion. Since then, Asia’s other emerging economic power – India – has been wondering if it should follow. This column argues that such a move is ill-advised and that India has more worthy investment opportunities at home.

Are sovereign wealth funds substantially different in their investment choices from other types of institutional investor? This column compares the holdings of two groups of sovereign and mutual funds – and finds a few differences. Contrary to popular belief, evidence suggests that sovereign and mutual funds’ investments do not differ when looking at the political profile of targeted countries.

The present financial crisis has placed financial stability at the forefront of policy discussions. At the same time, sovereign wealth funds have become much more significant players over the past two years. This column summarises the results of some recent studies about sovereign wealth funds and their implications for financial stability. Overall, the existing research on SWFs suggests that they can be a stabilising force in global financial markets.

This column provides evidence that there is great deal of difference between the governance standards of the economies in which sovereign wealth funds have been established and the standards of the industrial economies in which they are seeking to invest. It also discusses how the expansion of asset holdings of sovereign wealth funds may reduce official reserve holdings.

European security concerns about foreign investment have produced opaque and inconsistent responses by national governments. This column makes the case for establishing a EU authority to address the issue in an open, comprehensive and sustainable manner rather than allowing the proliferation of disparate national regulatory initiatives. The openness of the EU investment environment is at stake.

French President Nicholas Sarkozy has proposed that European nations create sovereign wealth funds to protect national companies from foreign “predators.” This column says that idea is protectionist and without merit. Emerging economies establish sovereign wealth funds to invest foreign reserves or commodity revenue – not to bail out domestic firms and stifle global competition.

Why are emerging Asian economies accumulating massive foreign exchange reserve stocks? Much research has focused on precautionary or export-promoting motives. This column argues that emerging economies are pursuing exchange rate management with a strong bias towards preventing appreciation.

How should developing countries spend an unexpected surge in foreign assistance or natural resource revenues? This column makes the case for establishing a sovereign wealth fund and examines the market imperfections that may constrain such a policy.

Sovereign wealth funds are a hot topic, but they’re poorly understood. Four popular myths are that sovereign wealth funds are (1) about “them” not “us”, (2) all the same in their opacity, (3) a net benefit to the international financial system, and (4) not like hedge funds. This column explodes those myths and outlines a framework of reciprocal responsibility for sovereign investors and their investment recipients.