A sovereign wealth fund ( SWF ) or sovereign investment fund is a state-owned investment fund that invests in tangible and financial assets such as stocks, bonds, estate, precious metals, or in alternative investments such as private equity funds or hedge funds. Funds of state property are investing globally. Most SWF is funded by revenues from commodity exports or from foreign exchange reserves held by central banks. With the historic convention, the United States Social Security Trust Fund, with assets worth $ 2.8 trillion in 2014, and similar vehicles such as the ownership of 200 billion yen Japanese Post Bank, is not considered a state fund of wealth.
Some government wealth funds may be held by the central bank, which raises funds in the management of the state banking system; these types of funds usually have large economic and fiscal interests. Other state funds are only state deposits invested by various entities for the purpose of return on investment, and that may not have a significant role in fiscal management.
The accumulation of funds may come from, or may represent, foreign currency deposits, gold, special drawing rights (SDRs) and the position of International Monetary Fund (IMF) held by central banks and monetary authorities, together with other national assets such as pension investment, oil, or other industrial and financial ownership. It is an asset of sovereign states that are usually owned in domestic and different currency reserves (such as dollars, euros, pounds, and yen). Such investment management entities can be established as official investment companies, state pensions, or state funds, among others.
There are attempts to differentiate funds held by state entities from foreign exchange reserves held by the central bank. The funds of state assets can be characterized as maximizing long-term returns , with foreign exchange reserves serving short-term "eye stabilization", and liquidity management. Many central banks in recent years have large reserves outside of liquidity or foreign exchange management needs. In addition, it is believed that most have a very large diversification into assets other than short-term, highly liquid currencies, although almost no data are available to support this assertion. Some central banks even start buying equities, or derivatives of different types (even if that is quite safe, such as interest rate swaps overnight).
Video Sovereign wealth fund
Histori
The term "sovereign wealth fund" was first used in 2005 by Andrew Rozanov in an article entitled, "Who holds the wealth of the nations?" in the Central Banking Journal . The previous edition of the journal describes a shift from traditional reserve management to state wealth management; after which the term is used widely because the spending power of global officials has skyrocketed upward.
Some of them have attracted attention making bad investments in some Wall Street finance companies like Citigroup, Morgan Stanley, and Merrill Lynch. These companies require cash infusions due to mismanagement and subprime mortgage crisis.
SWF invests in asset classes such as stocks, bonds, real estate, private equity, and hedge funds. Many government funds directly invest in institutional real estate. According to Sovereign Wealth Fund Institute's transaction database of approximately US $ 9.26 billion in direct sovereign wealth funds transactions are listed in the institutional real estate for the last half of 2012. In the first half of 2014, the direct offer of global direct sovereign wealth of $ 50.02 bil according to SWFI.
Initial SWF
State funds have been in existence for more than a century, but since 2000, the amount of government wealth funds has increased dramatically. The first SWF was a non-federal United States fund established in the mid-19th century to fund certain public services. The US state of Texas is the first country to create such a scheme, to fund public education. The Permanent School Fund (PSF) was created in 1854 to benefit primary and secondary schools, with the following Permanent University Fund (PUF) in 1876 to benefit the university. PUF is endowed with public land, state-sustained ownership under the terms of the 1845 annexation agreement between the Republic of Texas and the United States. While the PSF was first funded by the designation of the state legislature, it also received public land at the same time as the PUF was formed. The first SWF established for sovereign states was the Kuwait Investment Authority, a SWF commodity created in 1953 from oil revenues before Kuwait gained independence from Britain. According to many estimates, Kuwait fund is now worth about US $ 600 billion.
Another registered SWFs are the Equal Revenue Equation Fund of Kiribati. Created in 1956, when the British government in Gilbert Islands in Micronesia put charges on phosphate exports used in fertilizers, the funds then grew to $ 520 million.
Maps Sovereign wealth fund
Nature and destination
SWF is usually created when the government has a budget surplus and has little or no international debt. It is not always possible or desirable to withhold this excess liquidity as money or channel it to direct consumption. This is especially true when a country depends on the export of raw materials such as oil, copper or diamond. In such countries, the main reason for creating SWFs is due to the nature of resource revenues: the high volatility of resource prices, the uncertainty of extraction, and the completeness of resources.
There are two types of funds: saving funds and stabilization funds. SWF stabilization is made to reduce the volatility of government revenues, to counter the effects of the boom-cycle on government spending and the national economy. SWF savings make savings for future generations. One such fund is the Norwegian Government Pension Fund. It is believed that SWFs in resource-rich countries can help avoid resource curses, but the literature on this question is controversial. The government may be able to spend money immediately, but risk causing the economy to overheat, for example, in Venezuela Hugo ChÃÆ'¡vez or Iran Shah era. In such circumstances, saving money to spend during periods of low inflation is often desirable.
Another reason to create SWF may be economic, or strategic, like a war casket for an uncertain time. For example, the Kuwaiti Investment Authority during the Gulf War manages excess reserves above the level required for currency reserves (although many central banks do so now). The Singapore Investment Corporation and Temasek Holdings are partially expressions of a desire to strengthen Singapore's position as an international financial hub. Korean Investment Corporations have been managed in the same way. Sovereign wealth funds invest in all types of companies and assets, including startups like Xiaomi and renewable energy companies like Bloom Energy.
Worries about SWFs
The growth of sovereign wealth funds attracts attention because:
- As this asset pool continues to grow in size and importance, so does its potential impact on asset markets.
- Some countries fear that foreign investment by SWFs raises national security concerns because investment objectives may be to secure strategically important industrial controls for political gain rather than financial gain.
- Former US Treasury Secretary Lawrence Summers has argued that the US could potentially lose asset control for richer foreign funds whose emergence "shake the capitalist logic" This concern has led the EU to reconsider whether to allow its members to use "gold stock" to block certain foreign acquisitions. This strategy has been largely excluded as a viable option by the EU, fearing it will bring a revival in international protectionism. In the United States, these concerns are addressed by the Exon-Florio Amendment for Omnibus Trade and the Competitiveness Act 1988, Pub. L. No. 100-418, Ã,§§ 5021, 102 Stat. 1107, 1426 (codified as amended in 50 US applications Ã,§ 2170 (2000)), as governed by the Foreign Investment Committee in the United States (CFIUS).
- Their inadequate transparency is a concern for investors and regulators: for example, size and source of funds, investment goals, internal checks and balances, disclosure of relationships, and ownership in private equity funds.
- SWF is not nearly as homogeneous as the central bank or public pension fund.
- Lack of transparency and therefore increased risk to the financial system, may be a "new hedge fund".
The SWF government is committed to following certain rules:
- Accumulation rules (how much you can spend/save)
- Withdrawal rules (when the Government can withdraw funds)
- Investment (where earnings can be invested in foreign or domestic assets)
Government interest in 2008
- On March 5, 2008, a joint subcommittee of the US House Financial Services Committee held a hearing to discuss the role of "Foreign Government Investment in the US Economic and Financial Sector". The hearing was attended by representatives of the US Treasury, the US Securities and Exchange Commission, the Federal Reserve Board, the Norwegian Ministry of Finance, Temasek Holdings Singapore, and the Canadian Pension Plan Investment Board.
- On August 20, 2008, Germany approved a law requiring parliamentary approval for foreign investments that endanger the national interest. To be more specific, it affects the acquisition of over 25% of German voting shares by non-European investors - but economic minister Michael Glos has promised that investment reviews will be "extremely rare." This law is loosely modeled on similarities by the US Committee for Foreign Investment. The funds of state property also increase their spending. In fact, Qatar's wealth fund plans to spend $ 35 billion in the US in the next 5 years.
Santiago Principles
There are a number of transparency indices that emerged before the Santiago Principles, some tighter than others. To address these concerns, some of the world's major SWFs gathered at a summit in Chile on September 2-3, 2008, under the leadership of the IMF, they established the Temporary Sovereign Interim Provisional Funds International Working Group. The working group then drafted the Santiago Principles 24, to establish a global set of global standards regarding transparency, independence and accountability in the way SWF operates. This was published after being presented to the IMF's International Monetary Finance Committee on October 11, 2008. They were also regarded as a permanent committee to represent them and the new organization, the IFSWF International Forum of State Funds (IFSWF) was then set up to maintain new standards forward and represent them in the international policy debate.
As of 2016, 30 funds have officially registered with Principles that represent collectively 80% of assets managed by state funds globally or USD 5.5 trillion.
New SWFs established in jurisdictions developed since 2010
SWF is newly established in various jurisdictions developed after 2010 following rising energy and commodity prices, such as North Dakota Pension Fund (2011) and Western Australia's Future Fund (2012). Israeli Citizens' Fund will begin operations by 2020 after several years of preparatory work involving American veterans as well as local asset management experts.
Size of SWF
SWF-managed assets increased for the fifth year running in 2013 to reach $ 5.78 trillion. There are additional $ 7.2 trillion saved in other sovereign investment vehicles, such as pension fund reserves, development funds and state-owned enterprise funds and $ 8.1 trillion in other official foreign exchange reserves. Together, the SWF governments, especially those in developing countries, have access to a pool of $ 20 trillion. Some of these funds in the future can be channeled into funding the construction of existing infrastructure of global demand.
Countries with SWF are funded by oil and gas exports, especially oil and gas exports, reaching $ 4.29 trillion by the end of 2014. Non-oil and gas SWFs total $ 2.82 trillion. Non-commodity SWFs are usually funded by asset transfers from official foreign exchange reserves, and in some cases from government budget surpluses and privatization revenues. Asian countries cover most of the funds.
An important point to note is the SWF-to-Foreign Reserve Exchange Ratio, which shows the proportion that the government has invested in investments relative to currency reserves. According to the SWF Institute, most oil producing countries in the Persian Gulf have a higher SWF-to-Foreign Exchange Ratio - for example, the Qatar Investment Authority (5.89 times) compared to China Investment Corporation (0.12) - reflects the attitude more aggressive to get higher results.
The largest sovereign wealth fund
The United Arab Emirates, Kuwait, Norway, and Russia all have funds devoted to investment in oil and natural gas exports. Other countries with diverse investment funds such as China, Singapore, Chile, and the Pacific island archipelago of Kiribati.
** This figure is the best estimate forecast by the Sovereign Wealth Funds Institute.
See also
- The global financial system
- National wealth
References
Further reading
- The Institute of Natural Resources & amp; Columbia Center for Sustainable Investment "Managing Public Trust: How to make natural resources work for citizens", 2014. [2]
- Castelli Massimiliano and Fabio Scacciavillani "The New Economy of Sovereign Wealth Funds", John Wiley & amp; Children, 2012
- Saleem H. Ali and Gary Flomenhoft. "Innovating the Sovereign Property Fund". Policy Innovation , February 17, 2011.
- M. Nicolas J. Firzli and Vincent Bazi, World Council Assets Board (WPC) Report: "Infrastructure Investment in the Savings Era: Pension Funds and Funds Perspective", USAK/JTW July 30, 2011 and Revue Analyze FinanciÃÆ'Â ¨ re , Q4 2011
- M. Nicolas J. Firzli and Joshua Franzel. "Non-Federal State Assets Fund in the United States and Canada". Revue Analyze FinanciÃÆ'¨re, Q3 2014
- Xu Yi-chong and Gawdat Bahgat, eds. Political Economy of Sovereign Property Fund (Palgrave Macmillan; 2011) 272 pages; SWF case studies in China, Kuwait, Russia, United Arab Emirates, and other countries.
- Lixia, Loh. "Sovereign Wealth Funds: States Buying the World" (Global Professional Publishing: 2010).
- Thatcher, Mark, and Vlandas, Tim (2016) "Outsiders of the outside state as a new source of patient capital: government policy to welcome the investment of the State Property Fund in France and Germany." Social Economic Review. ISSN 1475-1461
External links
- Organization of SWF Institutions dedicated to Studying the Sovereign Wealth Fund
- International Forum of Sovereign Wealth Funds IFSWF is a SWF volunteer group - Formed by the IMF
- The impact of the global economic crisis on sovereign wealth funds
- Sovereign Wealth Funds Map This is a SWF map and their assets
- The so-called "Sovereign Wealth Funds": regulatory issues, financial stability and prudential oversight - European Economy, Economic Papers, April 2009.
- The impact of sovereign wealth funds on global financial markets - European Central Bank, Occasional Paper no. 91. July 2008.
- Linaburg-Maduell Transparency Index - System points on the assessment of transparency of sovereign wealth funds
- Santiago Principles
- "Saudi Arabia will launch a $ 5 billion sovereign fund". MarketWatch. April 29, 2008 . Retrieved December 29, 2012 . Ã,
Source of the article : Wikipedia
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