1 group members: chang meng han chang chiao min lin chun tse liu lu sovereign wealth funds: trends,...
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Group Members:Chang Meng Han Chang Chiao Min Lin Chun Tse Liu Lu
Sovereign Wealth Funds: Trends, Opportunities and Concerns
FINANCIAL MARKETS, GOVERNANCE AND REGULATION FINAL REPORT
Professor: Pierre Francotte
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Introduction
What is Sovereign Wealth Fund? State-owned investment fund investing globally in real and financial assets
Purpose
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StabilizationFund
SavingFund
DevelopmentFund
Pension Reserve Fund
Funding
Foreign-exchange reserves
surplus of natural resource
Sovereign Wealth Funds
Country SWF name Asset(billion USD)
Transparency index
Norway Government pension fund-global 893 10
UAE-Abu Dhabi Abu Dhabi Investment Authority 773 6
Saudi Arabia SAMA foreign holdings 757 4China China Investment Corporation 653 8
China SAFE investment company 568 4
Kuwait Kuwait investment authority 548 6
China-Hong Kong Hong Kong monetary authority investment portfolio
400 8
Singapore Government of Singapore investment corporation
320 6
China National social security fund 202 5
Singapore Temasek holdings 177 10
Top 10 players
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Difference from nation-run entity
State-owned enterprises
foreign-exchange reserve
• Purpose of operating• short-term currency stabilization• liquidity control
• Capitalization: shareholders, stock• focus on the operation in specific
industry or field
nation-run entity
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Pros and Cons of SWFs
Content TitlePros
The risk of investment target or misallocationCons
Social welfare, Sustainable development
Capital market stabilizing
Active using idle capital
Home market :
Global market :
Liquidity improvement and market development
Pros Market stabilizing
Protectionism or National security concern
Lack of transparency and regulation
Cons
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Prevailing Concerns
Text1
TransparencyInvestment Strategy
Inside Information
• Risk Management• Performance Assessment
• Recipient Countries• Home Countries• Global Market
• Openness of the market• Behave like other investorsAmerica and Europe appeal to
establish a code of conduct for sovereign wealth funds with
voluntary application
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Governance and Regulations of SWFs
Recipient Country Policies(OECD)
Santiago Principles
(IFSWF) +• To help maintain a stable global financial system and
free flow of capital and investment
• To comply with all applicable regulatory and disclosure requirements in the countries in which they invest
• To invest on the basis of economic and financial risk and return-related considerations
• To have in place a transparent and sound governance structure that provides for adequate operational controls, risk management, and accountability.
• Legal framework, objectives, and coordination with macroeconomic policies
• Institutional framework and governance structure
• Investment and risk management framework
Santiago Principles- 24 GAPP
Track Record of Implementation
The International Forum undertook an internal survey of members’ experiences in applying the Santiago Principles in 2010.
Most members thought transparency is the key element.( Botswana’s Pula Fund & Norges Bank Investment Management)
Some of the largest and most powerful SWFs in the Middle East didn’t comply with the Santiago Principles.(Abu Dhabi Investment Authority, Kuwait Investment Authority)
In 2013, the survey told that their members had some improvement in GAPP Implementation, and Truman (2013) also observed the same thing.
SWF Scoreboard
• Put some pressure on their members who didn’t participate in the survey.
• Persuade those non-IFSWF members to join the group
Truman’s (2013) findings is quite similar to the IFSWF survey.
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Case study 1: Norway Government pension fund global
Management Structure: Norge bank investment /Ministry of Finance /Council on Ethics
Money sources:
Purpose:Solve the non-renewable petroleum resources , smooth out the highly fluctuating in oil price and take precautions of an aging population problem
By petroleum sector, including the taxes from companies and payment for license to explore, etc.
Established 1990
Asset US$ 893 billionOrigin Oil
Transparency rating 10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-30
-20
-10
0
10
20
30
Annual return and Accumulated return. Percent
annual retuns average returns since 1998 benchmarks indices
Norway - Government Pension Fund Globa
New Zealand - Superannuation Fund
Australia - Future Fund
Chile - E/S Stabilization Fund and Pension Reserve Fund
US/Alaska - Alaska Permanent Fund
Timor-Leste - Petroleum Fund
Singapore - Temasek Holdings
Canada - Alberta Heritage Savings Trust Fund
Azerbaijan - State Oil Fund
Singapore - GIC
Trinidad and Tobago - Heritage and Stabilization Fund
China - China Investment Corporation
Korea - Korea Investmenty Corporation
United Arab Emirates - Abu Dhabi Investment Authority
Kuwait - Kuwait Investment Authority
Russia - National Wealth Fund and Reserve Fund
Botswana - Pula Fund
Mexico - Oil Revenues Stabilization Fund
Qatar - Qatar Investment Authority
Bahrain - Future Generations Reserve Fund
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
94%
92%
90%
85%
83%
81%
79%
77%
71%
69%
65%
61%
58%
53%
52%
46%
44%
39%
31%
24%
Santiago Compliance Index 2013
Santiago Compliance Index 2013
Point principle of linaburg-maduell transparency index
+1 Fund provides history including reason for creation, origins of wealth,and government ownership structure
+1 Fund provides up-to-date independently audited annual reports
+1 Fund provides ownership percentage of company holdings and geographic locations of holdings
+1 Fund provides total portfolio market value,returns and management compensation
+1 Fund provides guidelines in reference to ethical standards, investment policies ,and the enforcer of guidelines
+1 Fund provides clear strategies and objectives
+1 If applicable ,the fund clearly identifies subsidiaries and contact information
+1 If applicable, the fund identifies external managers
+1 Fund manage its own web site
+1 Fund provides main office location address and contact information such as telephone and fax
Investment strategies
• The portfolio is balanced• Invest abroad only• Well diversified• Do not control over the target enterprise• Never manipulate a single company's
stock market price
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Case study 2: Sovereign Wealth Funds in China
• Fund rankings in 2013Ranks Name Asset ($Billion) Inception
4 China Investment Corporation 652.7 2007
5 SAFE Investment Company 567.9 1997
9 National Social Security Fund 201.6 2000
Newly-established
Huge sizes• Investment of SWFs in China
CIC SAFE
Investment Focus Before subprime crisis: financial institutionsAfter failure: gasoline, airline and so on
Unclear
Companies invested
Before crisis: Blackstone, Morgan StanleyAfter: GDF Suez, Heathrow Airport Holdings Limited
Royal Dutch Shell, BP Amoco, TESCO, Barclays Bank and so on (ratio of share holding< 1%)
Amount 21 billion dollars in 200858 billion dollars in 200936 billion dollars in 2010
Five million pounds in the British security market
Source: http://www.swfinstitute.org/fund-rankings/Source :Feng, L. A study of economic effects of sovereign wealth funds [D]. Zhengjiang University
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Case study 2: Sovereign Wealth Funds in China
SWFs in China are unclearly oriented, and the ownership of the capital is still controversial.
an investment fund
a fund manager
Ownership of SWFs in China
• Inconsistent with Santiago Principles
SWF
Risk Control
CIC and SAFE do not publish their own risk management standard
It is impossible for others to know how they judge risks.
The general approach to the SWF’s risk management framework should be publicly disclosed”.
Santiago Principles 22.2. Subprinciple!?
Santiago Principles 1.2. Subprinciple
The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed
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Norway - Government Pension Fund Globa
New Zealand - Superannuation Fund
Australia - Future Fund
Chile - E/S Stabilization Fund and Pension Reserve Fund
US/Alaska - Alaska Permanent Fund
Timor-Leste - Petroleum Fund
Singapore - Temasek Holdings
Canada - Alberta Heritage Savings Trust Fund
Azerbaijan - State Oil Fund
Singapore - GIC
Trinidad and Tobago - Heritage and Stabilization Fund
China - China Investment Corporation
Korea - Korea Investmenty Corporation
United Arab Emirates - Abu Dhabi Investment Authority
Kuwait - Kuwait Investment Authority
Russia - National Wealth Fund and Reserve Fund
Botswana - Pula Fund
Mexico - Oil Revenues Stabilization Fund
Qatar - Qatar Investment Authority
Bahrain - Future Generations Reserve Fund
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
94%
92%
90%
85%
83%
81%
79%
77%
71%
69%
65%
61%
58%
53%
52%
46%
44%
39%
31%
24%
Santiago Compliance Index 2013
Santiago Compliance Index 2013