Wake-up call for sovereign wealth funds

As Libya's citizens rebuild their lives and economy, undoing the corruption in the Libyan Investment Authority (LIA), the sovereign wealth fund (SWF) in which Muammar Gadhafi's regime allegedly stashed and misused Libya's oil wealth, is becoming a priority. The National Transitional Council is debating who should take over Libya's Central Bank and the LIA's assets an especially important decision, given that oil production is not expected to return to pre-war levels for several years.

Regardless of how the Libyan government eventually handles the LIA, all sovereign wealth funds and their advisers and fundraisers can learn several important lessons. Of course, no one should infer from the Libyan case that other SWFs across the board are riddled with corruption and conflicts of interest. The LIA has always been exceptional; indeed, several indices that rank SWFs on transparency, accountability, and governance issues have traditionally given only Iran a lower ranking.

Yet, while hard cases tend to make bad law and it is too early to judge, the LIA should be a wake-up call for corporations and funds both in the Middle East and around the globe.