1. Introduction

Sovereign wealth funds, which invest the income generated from natural resources, can be an effective tool for addressing and combating economic crises such as the resource curse and Dutch disease. The characteristic feature of successful sovereign wealth funds is the prudent management of resources and the creation of stable and sustainable income from them, which is achieved through portfolio investments in foreign securities. Additionally, due to the massive volume of investment resources these funds possess, attracting capital becomes even more significant. Given Iran's geographical and economic position, as well as its proximity to several wealthy countries with numerous sovereign wealth funds, the importance of such funds for Iran is greatly heightened.

The strategies for attracting and developing foreign investment in our country for foreign sovereign wealth funds primarily depend on the feasibility and capacity assessment of the legislative framework and infrastructure for their presence and investment in Iran's capital market. Subsequently, appropriate corrective measures can be identified and implemented. These are the objectives of this article.



2. Research Gap and Objective

This article aims to identify, analyze, and evaluate the legislative constraints on portfolio investment in Iran's capital market, with an emphasis on sovereign wealth funds. In this context, we first elucidate and analyze the specific constraints and then discuss their relevance and impact on the portfolio investments of these funds in Iran's capital market. It should be noted that this research focuses solely on the potential constraints affecting foreign sovereign wealth fund investments, as emphasized in the title, and does not address other possible limitations.



3. Methodology

This article employs a library research method along with fundamental research techniques and a descriptive-analytical approach. Based on the patterns and standards outlined in documents and reports from relevant international organizations, Iran's positive law is analyzed and assessed concerning the legislative constraints on portfolio investment in Iran, specifically regarding foreign sovereign wealth funds. Ultimately, this analysis aims to identify existing shortcomings and propose corrective strategies to enhance the investment capability of these funds in Iran's capital market.



4. Key Findings

1. The existing legislative deficiencies regarding foreign investment regulations in commodity and energy exchanges do not significantly impact the investment capabilities of foreign sovereign wealth funds in Iran.

2. The requirement for registration, whether related to securities or the issuing company, cannot be deemed a barrier or limitation for foreign sovereign wealth funds investing in the securities market. However, ambiguity regarding enforcement and its legal implications can render the legal status of transactions involving securities uncertain and unpredictable. Additionally, the establishment of transformed over-the-counter markets alongside stock and securities markets further complicates and obscures foreign sovereign wealth funds' investment and ownership of securities.

3. The criticism regarding the removal of time limitations on the transfer of funds related to investments in securities does not apply. Moreover, the implementation of Article 10 of the Regulation on Foreign Investment in Stock Exchanges and Over-the-Counter Markets concerning the method of paying the equivalent foreign currency for transferable funds to investors, given the current sanctions conditions—especially for public and governmental entities like sovereign wealth funds—poses significant challenges.

4. The mandatory nature of arbitration specified in the Securities Market Law and its implementation mechanisms create a serious obstacle to attracting foreign investment, particularly from foreign governmental entities such as sovereign wealth funds. Furthermore, the practice of mandatory arbitration reinforces its imperative nature even for foreign investors, hindering the adoption of alternative mechanisms for recourse to impartial international arbitration bodies.



5. Contribution to the Field

The strategies for attracting and developing foreign investment in our country for foreign sovereign wealth funds primarily hinge on the feasibility and capacity assessment of the legislative framework and infrastructure for their presence and investment in Iran’s capital market. Additionally, considering the principle of transparency governing these funds and its emphasis in Santiago Principles, a cautious and precise approach must be designed and implemented. Therefore, attention must be paid to the obstacles and limitations arising from applying this principle in dealing with economic sanctions, avoiding unrealistic perceptions regarding the role of these funds. This article aims to evaluate and analyze Iran's current laws in this regard and provide effective strategies based on existing deficiencies. Thus, this article holds special role in terms of the necessity for reforming the legislative policy of the Islamic Republic of Iran concerning portfolio foreign investment, particularly regarding sovereign wealth funds.



6. Implications and Applications

1. Sovereign wealth funds, based on risk management and the necessity for stable income in their investment strategies, typically do not engage in buying and selling commodities or energy-based products. Hence, legislative deficiencies in foreign investment in commodity and energy exchanges do not significantly affect their investment capabilities in Iran.

2. Ambiguity concerning enforcement guarantees and legal implications of registration requirements—whether related to securities or issuing companies—can render the legal status of transactions involving unregistered securities in stock or over-the-counter markets ambiguous and unpredictable, 3.including within the scope of sovereign wealth fund actions and investments.

3. Beyond technical legal discussions regarding sovereign wealth funds, interactive mechanisms concerning the transferability of funds with the home country of the fund must be considered. In this context, adherence to FATF requirements plays a crucial role, especially for sovereign wealth funds.

4. The mandatory arbitration stipulated in the Securities Market Law undermines the principles of impartiality, predictability, and independence of dispute resolution mechanisms for foreign investors, posing fundamental challenges.



7.Conclusion

Based on the findings of the present study, while legislative ambiguities regarding foreign investment in commodity and energy exchanges do not constitute a serious obstacle to the investment of foreign sovereign wealth funds in Iran's capital market, legal uncertainties regarding the obligation to register securities and their issuing companies in relation to ownership of securities, ambiguities surrounding the feasibility and manner of acquiring securities offered in over-the-counter markets, restrictions on transferring investment-related funds abroad, and the organization of an arbitration entity for capital market disputes—functioning as a specialized non-judicial resolution body rather than arbitration in its conventional sense—pose significant challenges for such funds’ investment. Therefore, this article presents strategic recommendations to address these shortcomings.