The sovereign wealth funds (SWFs), as the rise of ‘state capitalism’, are shaping the current political arena and global economic order. Questions have been raised with regard to the motivation of these funds and the plausible regulatory responses to this phenomenon. After a brief review of SWF investment in global markets and the literature review on the controversy surrounding SWFs, this article will examine critical points that need to be considered when regulating SWFs. It argues that legal measure should tackle specific issues but not discriminate the nature of state ownership. By considering subjective and objective elements, three general regulatory models and further suggestions for international regulation of SWFs are proposed and examined. The political economy dimension of SWFs may easily mislead the direction of the necessary legal response. Policymakers have to navigate between attracting foreign capital and protecting the legitimate national security. The article suggests that the rights and obligations of SWFs should be guaranteed and balanced. It finds that unilateral actions vary from jurisdiction to jurisdiction and there is no one-size-fits-all approach for every country while there could be a plausible approach via international regulation, i.e. incorporating soft law rules into hard law investment treaties.