Making the most of Sovereign Wealth Funds

With a lack of transparency and political complications affecting the use of SWFs worldwide, it’s no wonder there are wide disparities when it comes to their correct use, writes Pierre-Emmanuel Iseux, Member of the Executive Board, La Compagnie Peter Hottinger

Sovereign Wealth Funds (SWF) are government investment funds responsible for managing assets, usually with a long-term outlook. The assets under management come from many sources, but in most cases, the funds’ assets are funded by oil, gas or mining royalty income, or other trade surpluses of owner states.

More than 40 sovereign wealth funds have been created since 2006. The rising price of oil and other commodities is the prime factor that has forced numerous states to diversify their domestic financial reserves into what are often regarded as more lasting investments.
Today, over a hundred sovereign funds manage assets estimated at over $5,000bn in aggregate, accounting for more than two percent of the world’s bonds and equities market.
The assets of sovereign wealth funds are highly concentrated. Over two-thirds of the assets are held by half a dozen funds located in the UAE (managing some $800bn), Norway ($550bn), Singapore and Saudi Arabia (with $400bn each), Kuwait (over $300bn) and China ($750bn).

As a group, however, these funds exhibit wide disparity. Several major categories of fund can be distinguished:
– Economic stabilisation funds: these are created by states whose budget resources are heavily dependent on exports of commodities, mostly oil and gas, and are designed to guard against price fluctuations (eg Fundo Soberano de Angola).
– Funds managing reserves for transfers to future generations: these are developed in countries where the state anticipates the phased depletion of its source of wealth by accumulating reserves for the benefit of future generations, and invests in creating its future development model (eg Abu Dhabi Investment Authority).
– Funds to finance pensions: certain States create funds to supplement the funding of pensions, which is falling short on account of the increasing demographic imbalance within the population (eg Norway’s government pension fund).
– Reserve investment funds: certain states with high trade surpluses invest part of their foreign-exchange reserves (eg China Investment Corporation).

--------------30--------------

This BLOG  looks at pensions and their impact on what are called Public Private Partnerships or P3’s these are not really about private funding at all but about two streams of public funding, pensions and government with private capital a third partner.
We will also deal with other pension matters, such as Defined Contribution Plans (DC) vs Defined Benefit (DB) PLANS, the weakness in private plans, the need for pension reform in public pensions to have shareholder rights, directorships and ethical investment directives and policies. 
Finally taking the long view we will show how these funds are forms of evolving social capital that is dominating private capital as we evolve into socialization of capital. 
Click HERE to read more....