by Eric C. Anderson · 15 Jan 2009 · 264pp · 115,489 words
This page intentionally left blank CONTENTS Acknowledgments INTRODUCTION ix Sovereign Wealth Funds: The Peril and Potential for America 1 CHAPTER 1 The Sovereign Wealth Funds of Nations 13 CHAPTER 2 Birth of a Sovereign Wealth Fund: The China Investment Corporation 42 CHAPTER 3 Investing Like a Sovereign Wealth Fund 66 CHAPTER 4 Evaluating Sovereign Wealth Funds 97 CHAPTER 5 Trust but Verify 131 CHAPTER 6
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would continue to pay dividends after the “goose that laid the golden egg” was dead. These savings accounts are now commonly referred to as “sovereign wealth funds.” More specifically, sovereign wealth funds can be distinguished from foreign exchange reserves by classifying the former as “a by-product of national budget surpluses, accumulated over the years due
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indexed funds listed on Wall Street is not as profitable as many Americans would like to believe. Increasingly, diversification in the sovereign wealth fund world means placing the money in assets Sovereign Wealth Funds: The Peril and Potential for America 9 outside the United States. All of this suggests that the big losers here are
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investment horizon and a higher tolerance for swings in profits and losses. . . . Having such a different temperament from private funds, sovereign wealth funds should reduce the risk of herd behavior.”44 Sovereign Wealth Funds: The Peril and Potential for America 11 So there is room to argue that Americans need to learn to separate the
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U.S. policy makers, this fiscal activity appears to be assuming a vector with potentially significant negative implications for the American economy. What Is a Sovereign Wealth Fund? Sovereign wealth funds are best understood as national investment vehicles2 created with monies considered in excess of, and managed separately from, a country’s foreign reserves.3 As
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that can be put back into international circulation through corporate acquisitions, stock purchases, and even real-estate speculation. In short, sovereign wealth funds The Sovereign Wealth Funds of Nations 15 Table 1.1 Top 10 Sovereign Wealth Funds in 20079 Country Fund Established Assets $bn UAE Origin Abu Dhabi Investment Authority 1976 $875 Oil Singapore Government of Singapore Investment
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Korea Investment Corporation—and Beijing has now initiated the China Investment Corporation (CIC). Similar noncommodity-based sovereign wealth funds are being considered in New Delhi and Tokyo.12 Why the Sudden Focus on Sovereign Wealth Funds? Given the fact sovereign wealth funds have been in existence for over 50 years— and that some of these reserve-based portfolios
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with reporters at Time, Alex Patelis, the head of international economics at Merrill Lynch, declared investors ought to “rejoice at the impetus The Sovereign Wealth Funds of Nations 23 sovereign wealth funds will provide to continued growth in global asset markets.”60 Michael Pettis, a professor of finance at Peking University and director at New York
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the U.S. financial sector—is in order. As of mid-March 2008, it appears there is a limit on even sovereign wealth fund interest in ailing U.S. financial firms. Sovereign wealth fund managers were remarkably absent from the last-minute efforts to rescue Bear Stearns—which left J.P. Morgan to “scoop up
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. In June 2007, U.S. Treasury Acting Undersecretary for International Affairs Clay Lowery warned an audience in San Francisco that sovereign wealth funds presented four potential risks: • Little is known about sovereign wealth fund investment policies, resulting in the potential for minor comments or rumors to cause market volatility as other investors react to what
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which would be very harmful to the global economy.” “Second, transactions involving investment by sovereign wealth funds, as with other types of foreign investment, may raise legitimate national security concerns.” And, third, “sovereign wealth funds may raise concerns related to financial stability. Sovereign wealth funds can represent large, concentrated, and often nontransparent positions in certain markets and asset classes
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U.S. government’s role in monitoring this development was to “make our investment regime as open and consistent as possible for welcoming sovereign wealth fund investment.”106 On The Sovereign Wealth Funds of Nations 31 13 November 2007, Commerce Secretary Carlos Gutierrez took a like approach by stating, “Let me make it clear: as
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financial market and to national security. No one should compromise on issues such as risk management, transparency and accountability associated with the [sovereign wealth] funds.”118 Is this protectionist sentiment justified? Sovereign wealth fund managers are certainly seeking to assuage this political sensitivity through carefully crafted publicity campaigns and by avoiding thresholds that would automatically trip
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, or next week, or perhaps next year, one can predict long nights of tossing and turning. C HAPTER 2 BIRTH OF A SOVEREIGN WEALTH FUND: THE CHINA INVESTMENT CORPORATION China’s sovereign wealth funds threaten a loss of American sovereignty. This danger lies in . . . China’s ability to use its vast foreign reserves to destabilize
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Alpha study reveals, even the best investors tend toward an even breadth of diversified assets over time. Is the same true for sovereign wealth funds? The dearth of information concerning sovereign wealth fund investment strategies—and these organizations’ efforts to participate in commercial markets without revealing potentially profitable insights—makes an evaluation of their spending
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This is particularly the case in the Middle East, where oil-producing states are now estimated to hold 40% of all sovereign wealth fund capital.62 As one analyst put it, “the sovereign wealth funds of the Arabian Gulf are now a crucial source of capital and liquidity, as much of the world copes with slower
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and manufacturer of automatic transmissions used in the medium- and heavy-duty commercial vehicle markets.109 Suspicion Has Not Stemmed Desire for Sovereign Wealth Fund Investment Regardless of the motivations driving sovereign wealth fund investments, there is a growing recognition these government agencies offer access to capital vital for economic growth. As such, initial suspicion
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very harmful to the U.S. and global economies. 2. Transactions involving investment by sovereign wealth funds, as with other types of foreign investment, may raise legitimate national security concerns. 3. Sovereign wealth funds may raise concerns related to financial stability. Sovereign wealth funds can represent large, concentrated, and often nontransparent positions in certain markets and asset classes.
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. “dark pools”) or the hedge funds and private equity options that could serve to abet this problem. Investing Like a Sovereign Wealth Fund 89 And what of the potential that sovereign wealth funds offered to the United States? On this front McCormick proved a wealth of facts. International investment in the United States fuels U
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simply look forward to higher housing costs. I think it is also safe to predict sovereign wealth funds will offer the potential of a stabilizing force on equities markets. As Bader Al-Sa’ad, Kuwait’s sovereign wealth fund manager, argues, “Sovereign wealth funds are not speculative. They are stable and disciplined. They are building long-term portfolios.
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we see no need for regulations that would restrict the present investment activities of our fund or any regulation imposing restrictions on sovereign wealth funds over and above those applying to non-sovereign wealth fund investors. —Kristin Halvorsen, Norwegian Finance Minister, February 20081 Despite repeated protests they are simply investing public funds in a manner
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investment. On 21 March 2008, this news from Abu Dhabi was trumped by the release of a joint statement on the “Policy Principles for Sovereign Wealth Funds and Countries Receiving Sovereign Wealth Fund Investment.” Signed by Abu Dhabi, Singapore, and the United States, the joint statement was said to be “aimed at contributing to the work
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receiving investments.”14 In the joint statement, the three parties outlined five policy principles for sovereign wealth funds and four policy principles for countries receiving 100 Take the Money and Run sovereign wealth fund investment. The five policy principles for sovereign wealth funds stated: 1. Sovereign wealth fund investment decisions should be based solely on commercial grounds, rather than to advance, directly
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however, these indices are the “best answer” one can hand a decision-maker tasked with evaluating competing sovereign wealth funds. Edwin Truman’s “Scoreboard for Sovereign Wealth Funds”: Edwin Truman’s “Scoreboard” is probably the best-known of the sovereign wealth fund transparency indexes. Truman, a senior fellow with the Peterson Institute for International Economics, was Assistant Secretary for
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structure, governance, transparency, and behavior. The questions are as follows: Table 4.1 Scoreboard for Sovereign Wealth Funds: The Scoring Criteria41 – Structure 1. Is the sovereign wealth fund’s objective clearly communicated? • Fiscal Treatment 2. Is the source of the sovereign wealth fund’s money clearly specified? 3. Is nature of the subsequent use of the principal and earnings
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frequent adjustment? • Other Structural Elements 6. Is the overall investment strategy clearly communicated? 7. Is the procedure for changing the structure of the sovereign wealth fund clear? 8. Is the sovereign wealth fund separate from the country’s international reserves? – Governance 9. Is the role of the government in setting the investment strategy of the
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and speed of adjustment in its portfolio? 29. Does the sovereign wealth fund have limits on the size of its stakes? 30. Does the sovereign wealth fund not take controlling stakes? 31. Does the sovereign wealth fund have a policy on the use of leverage? 32. Does the sovereign wealth fund have a policy on the use of derivatives? 33. Are
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but they do indicate a “current-as-of date,” which suggests that the index is subject to periodic review and updating. Evaluating Sovereign Wealth Funds 109 Table 4.2 Scoreboard for Sovereign Wealth Funds (Transparency and Total Score)49 Country Fund Name New Zealand Superannuation Fund Transparency 100 Total Score 95 U.S.-Alaska Permanent Fund
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Instead, we are simply told data used to create the listing were taken from Web sites, media reports, and research concerning sovereign wealth funds “other” financial institutions had provided.55 Evaluating Sovereign Wealth Funds 113 Table 4.5 The Lyons and Oxford Analytica Top 20 Sovereign Wealth Funds56 Country Fund Name Transparency Rating Canada-Alberta Heritage
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it would appear direct accountability to future generations, or service as a currency stabilization measure, results in greater disclosure of business practices and assets. Sovereign wealth funds without this direct commitment Evaluating Sovereign Wealth Funds 115 to the public good appear to be more likely to operate in manners that evoke target/recipient country suspicions. Breakingviews
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good. Promoting domestic demands for such accountability seems a far easier task than attempting to impose such standards from abroad. Evaluating Sovereign Wealth Funds 117 Table 4.7 Breakingviews Sovereign Wealth Fund Risk Index66 Country Norway Fund Name Pension FundGlobal CanadaHeritage Saving Alberta Trust U.S.-Alaska Alaska Permanent Fund Malaysia Khazanah National Korea Investment
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specifics on asset ownership and management performance are not the only reason Norway’s Government Pension Fund-Global is known as the gold Evaluating Sovereign Wealth Funds 121 standard for sovereign wealth fund transparency. Regular public distribution of key documentation and annual independent audits are also essential for securing this reputation. As each annual report makes
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promoting investment in the United States and safeguarding security interests through regulation.2 —Senator Richard Lugar (R-IN), Opening Statement for Hearing on Sovereign Wealth Funds, 11 June 2008 Sovereign wealth funds present a vexing problem for politicians in Washington DC. Members of the executive and legislative branches have made clear that they have no desire
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executing the investment strategy clearly established? Are guidelines for corporate responsibility publicly available? Does the sovereign wealth fund have ethical guidelines? Accountability—Does the sovereign wealth fund provide at least an annual report on its activities and results? Does the sovereign wealth fund provide quarterly reports on its activities? Do reports on investments include the size of the
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before the United States-China Economic and Security Review Commission, Washington DC, 7 February 2008. Notes 219 Chapter 3—Investing Like a Sovereign Wealth Fund 1. “Investments—World Grows More Wary of Sovereign Wealth Funds,” Asiamoney. com, November 2007. Willem Buiter is a former member of the Bank of England’s monetary policy committee. 2.
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Guidelines,” Director of International Affairs, The Government of Abu Dhabi, 12 March 2008 12. Ibid. 13. Ibid. 14. “Joint Release of Policy Principles for Sovereign Wealth Funds and Countries Receiving Sovereign Wealth Fund Investment by the United States, Abu Dhabi and Singapore,” Ministry of Finance, Singapore, 21 March 2008. 15. Ibid. 16. Ibid. 17. Peter Mandelson
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reference to “capital” would cover both foreign direct investment and the portfolio investments favored by sovereign wealth funds. (Charles Proctor, “Sovereign Wealth Funds: The International Legal Framework,” Presentation to the Sovereign Wealth Management Conference, London, 14 March 2008.) 81. Charles Proctor, “Sovereign Wealth Funds: The International Legal Framework,” Presentation to the Sovereign Wealth Management Conference, London, 14 March
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Adopt Draft Guidelines for Investment,” Reuters, Santiago, Chile, 3 September 2008. 53. “IWG Rebuilds Trust in Sovereign Wealth Funds,” Forbes, Forbes.com, 17 October 2008. 54. Sovereign Wealth Funds: Generally Accepted Principles and Practices—“Santiago Principles,” International Working Group of Sovereign Wealth Funds, International Monetary Fund, Washington DC, October 2008. 55. Edwin Truman, “Making the World Safe for
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Jones, “EU Executive Wants to Review German Company Law,” Guardian, London, 21 August 2008. 64. Doug Young, “Taiwan Studies Setting Up Sovereign Wealth Fund,” Reuters, Taipei, 1 October 2008. 65. “Officials Reject Sovereign Wealth Fund Plan,” Taiwan News, etaiwannews.com, 2 October 2008. 66. “Eco-Tech Wealth Fund Planned,” Yomiuri Shimbun, Tokyo, 24 August 2008.
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33 Oxford Analytica, 5, 112, 187 People’s Bank of China, 43, 44 Peterson Institute for International Economics, 17, 27, 105 “Policy Principles for Sovereign Wealth Funds and Countries Receiving Sovereign Wealth Fund Investment,” 99–100 Public Good, 4, 97 Qatar Investment Authority, 79, 184 Rio Tinto, 61–62 Rogoff, Kenneth, 17, 18 Roubini, Nouriel, 162
by Elliot Ackerman and James Admiral Stavridis · 15 Mar 2021 · 297pp · 89,292 words
executive branch; he was an India expert (or simply Indian, if the offending party hadn’t read his CV). International lobbyists, think tanks, venture capitalists, sovereign wealth funds—they aggressively courted him with board seats, stock options, and prestigious titles such as “Senior Distinguished Fellow” as they vied for his expertise as part
by Tim Marshall · 21 Sep 2016 · 276pp · 78,061 words
. The Norwegians are now fiercely proud of their flag, country, currency and nationhood. That, and offshore oil and gas, which boost the world’s largest sovereign wealth fund, go a long way to explaining why it chose to remain outside the EU. Finland, meanwhile, was also under Swedish rule, from approximately 1150 right
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in the same place even when they are not. I used it in spring 2017 to present my book, The Great Convergence, to the Norwegian sovereign wealth fund, Norges Bank Investment Management (NBIM). I was in London with a couple of analysts and connected via telepresence with another group of NBIM economists located
by Edward Snowden · 16 Sep 2019 · 324pp · 106,699 words
polished presentation about what, exactly, makes a private bank private, and the challenge of investing without moving markets when your clients are the size of sovereign wealth funds. “Your clients?” I asked. That’s when he said, “Most of my work is on Saudi accounts.” After a few minutes, I excused myself to
by Tom Chivers · 6 May 2024 · 283pp · 102,484 words
may not’ are buried in the fine print.”26 Instead, he asked everyone to give precise numbers. It’s 45 percent likely that Greece’s sovereign wealth fund will default this year, or there’s a 10 percent chance that fighting between North Korea and South Korea kills more than one hundred people
by Joris Luyendijk · 14 Sep 2015 · 257pp · 71,686 words
the legal document that came with the tuna and there it says ‘can also contain dog food’. The governments of Italy and Greece, the Libyan sovereign wealth fund, the American state of Alabama and ‘countless other endowments and foundations’ … over the past years all of them discovered dog food in their Goldman Sachs
by Ronald J. Deibert · 14 Aug 2020
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the meeting, asking for an update. As I had begun to suspect, the problem was funding. Originally, the country of Abu Dhabi, which has a sovereign wealth fund, was going to support the XPRIZE. But that effort hadn’t worked out. Other funders hadn’t been identified. This is a chronic problem. Ever
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to move markets. This could influence government policy, as attempts to control Libra might result in the reserve dumping a currency. After all, Singapore’s sovereign wealth fund (the money sitting behind the Singapore dollar) is less than half a trillion dollars. Alipay (which may itself become one of a handful of global
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metaphorical sense – to cause economic harm to others. These attacks involve not only states and central banks, but also terrorists, criminals and investment banks using sovereign wealth funds, cyberattacks, sabotage and covert actions of a kind not discussed around the Davos dinner tables. States, of course, play a key role. Former IMF chief
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