FINANCIAL MARKETS, GOVERNANCE AND REGULATION FINAL REPORT
Sovereign Wealth Funds:
Trends, Opportunities and Concerns
Professor:
Pierre Francotte
Group Members:
Chang Meng Han
Chang Chiao Min
Lin Chun Tse
Liu Lu
1
Introduction
Top 10 players
 What is Sovereign Wealth Fund?
Country
SWF name fund investing globally in real
Asset
Transparency
State-owned investment
and financial assets
(billion USD)
index
Norway
UAE-Abu Dhabi
Government pension fund-global
893
Abu Dhabi Investment Authority
773
Purpose
1
Saudi Arabia
China
Stabilization
SAMA foreign holdings
China Investment
SavingCorporation
ChinaFund
SAFE investment company
Kuwait
Kuwait investment authority
China-Hong Kong
Hong Kong monetary authority
investment portfolio
3
2
Fund
4
Funding
10
6
757
653
Foreignexchange
568
reserves
548
4
8
400
8
4
surplus of
natural
resource
6
Singapore
Development
ChinaFund
Government of Singapore investment 320
6
corporation
Pension Reserve
Fund
Sovereign Wealth
National social
security fund
202
5 Funds
Singapore
Temasek holdings
177
10
2
Difference from nation-run entity
•
•
•
Purpose of operating
short-term currency stabilization
liquidity control
foreignexchange
reserve
nation-run
entity
•
•
Capitalization: shareholders, stock
focus on the operation in specific
industry or field
State-owned
enterprises
3
Pros and Cons of SWFs
 Home market :
Pros
Content
Title
Social
welfare,
Sustainable development
Cons
Capital market
stabilizing
Active using
idle capital
The risk of investment target or misallocation
 Global market :
Pros
Market stabilizing
Cons
Lack of transparency
and regulation
Liquidity improvement and
market development
Protectionism or
National security concern
4
Prevailing Concerns
•
•
•
Recipient Countries
Home Countries
Global Market
•
•
Transparency
Risk Management
Performance Assessment
Investment
Strategy
Text1
Inside
Information
America and Europe appeal to
establish a code of conduct for
sovereign wealth funds with
voluntary application
•
•
Openness of the market
Behave like other investors
5
Governance and Regulations of SWFs
Santiago
Principles
(IFSWF)
•
+
Recipient
Country
Policies
(OECD)
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.
Santiago Principles
- 24 GAPP
•
Legal framework, objectives,
and coordination with
macroeconomic policies
•
Institutional framework and
governance structure
•
Investment and risk
management framework
6
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
Truman’s (2013)
findings is quite
similar to the
IFSWF survey.
• Put some pressure
on their members
• Persuade
nonwho didn’t those
participate
IFSWF
members to
in the survey.
join the group
Case study 1: Norway Government pension fund global
Established
1990 Santiago Compliance Index
Investment
strategies
2013
US＄893 billion
Asset
Bahrain - Future
Generations Reserve Fund
24% index
Point principle
of linaburg-maduell
transparency
• The portfolio is balanced
Qatar - Qatar Investment
Origin
Oil Authority
31%
• Invest
abroad
only
+1
FundMexico
provides
history
including
reason
for
creation,
origins
of wealth,and
- Oil Revenues Stabilization Fund
39%
Transparency
rating
10
• Well diversified
government
ownership
Botswana - Pulastructure
Fund
44%
•
Do
not
control over the target enterprise
Russia
- National
Wealth Fund
and
46% reports
+1
Fund
provides
up-to-date
Purpose
: Reserve Fundindependently audited annual
• Never 52%
manipulate a single company's
Kuwait - Kuwait Investment Authority
Solve ownership
the non-renewable
+1 United Arab
Fund
provides
percentage
of
company
holdings
and price
geographic
Emirates - Abu Dhabi Investment Authority
53%
stock market
petroleum
resources , smooth
locations
of holdings
Korea - Korea
Investmenty Corporation
58%
out
the
highly
fluctuating
in
oil
China
China
Investment
Corporation
+1
Fund provides total portfolio market value,returns
and management
Annual
return61%and Accumulated return.
price
and
take
precautions
of
Trinidad
and Tobago - Heritage and Stabilization Fund
65%
compensation
Percent
Singapore - GIC
69%
an
aging
population
problem
30
+1
Fund provides guidelines in reference to ethical
standards, investment
policies
Azerbaijan - State Oil Fund
71%
,and
the enforcer of guidelines
Canada - Alberta Heritage Savings Trust Fund
77%
Money
sources:and objectives20
+1
Fund provides
clear
strategies
Singapore - Temasek Holdings
79%
10
Timor-Leste
- Petroleum Fund sector,
81%
By fund
petroleum
+1
If applicable
,the
clearly identifies subsidiaries and contact information
US/Alaska - Alaska Permanent Fund
83%
including the taxes from
0
Fund and
Pension
Reserve
Fund
+1 Chile - E/S
If Stabilization
applicable,
the
fund
identifies
external managers
85%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
companies
and payment
Australia - Future Fund
90%
-10
+1
Fund manage
its
own
web
site
for
license
to
explore,
etc.
New Zealand - Superannuation Fund
92%
Norway
- Government
Pensionoffice
Fund Globalocation address and
-20 contact information such as 94%
+1
Fund
provides
main
Management
Structure:
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
telephone andNorge
fax
bank 0%investment
-30
Santiago Compliance Index 2013
/Ministry of Finance
annual retuns
average returns since 1998
9
/Council on Ethics
benchmarks indices
Case study 2: Sovereign Wealth Funds in China
• Fund rankings in 2013
Newly-established
Ranks
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
• Investment of SWFs in China
Huge sizes
CIC
SAFE
Investment
Focus
Before subprime crisis: financial institutions
After failure: gasoline, airline and so on
Unclear
Companies
invested
Before crisis: Blackstone, Morgan Stanley
After: GDF Suez, Heathrow Airport Holdings
Limited
Royal Dutch Shell, BP Amoco,
TESCO, Barclays Bank and so on
(ratio of share holding< 1%)
21 billion dollars in 2008
58 billion dollars in 2009
36 billion dollars in 2010
Five million pounds in the British
security market
Amount
Source: http://www.swfinstitute.org/fund-rankings/
Source :Feng, L. A study of economic effects of sovereign wealth funds [D]. Zhengjiang University
10
Case study 2: Sovereign Wealth Funds in China
• Inconsistent with Santiago Principles
Santiago Compliance Index 2013
Ownership of
SWFs
in China
Bahrain
- Future Generations
Reserve Fund
Risk Control
24%
Qatar - Qatar Investment Authority
31%
Mexico - Oil Revenues Stabilization Fund
39%
CIC and44%
SAFE do not publish their own risk
management standard
46%
Botswana - Pula
Fund
an investment
fund
Russia - National Wealth Fund and Reserve Fund
Kuwait - Kuwait Investment Authority
52%
United Arab Emirates - Abu Dhabi Investment Authority
SWF
53%
Korea - Korea Investmenty Corporation
58%
a fund manager
China - China Investment Corporation
61%
It is impossible for65%others to know how
they judge
69% risks.
Trinidad and Tobago - Heritage and Stabilization Fund
Singapore - GIC
SWFs in China are unclearly oriented,
and the
Azerbaijan - State Oil Fund
ownership of theCanada
capital
is still controversial.
- Alberta Heritage Savings Trust Fund
71%
77%
!?
!?
Singapore - Temasek Holdings
Timor-Leste - Petroleum Fund
Alaska Permanent Fund
Santiago PrinciplesUS/Alaska
1.2. - Subprinciple
79%
81%
83%Subprinciple
Santiago Principles 22.2.
Chile - E/S Stabilization Fund and Pension Reserve Fund
85%
Australia
- Future
Fundand
The key features of the SWF’s
legal
basis
New Zealand - Superannuation Fund
structure, as well as the legal relationship
Norway - Government Pension Fund Globa
between the SWF and other state bodies,
0%
should be publicly disclosed
90%
10%
20%
The general approach to the SWF’s
risk
92%
management framework should94%
be publicly
disclosed”.
30%
40%
50%
60%
70%
80%
90% 100%
Santiago Compliance Index 2013
11
12