Should India join the sovereign-wealth-fund herd?
Kavaljit Singh 31 October 2011
In 2007 China set up its sovereign wealth fund, the China Investment Corporation, with an initial capital fund of $200 billion. Since then, Asia’s other emerging economic power – India – has been wondering if it should follow. This column argues that such a move is ill-advised and that India has more worthy investment opportunities at home.
New Delhi will soon take a final call on the issue of setting up of a sovereign wealth fund. The idea of setting up an Indian sovereign wealth fund has been going around since 2007 when China established its major sovereign wealth fund, China Investment Corporation (CIC), with an initial capital fund of $200 billion. However, this time the proposal has received strong support from India’s corporate leaders who recently suggested the establishment of a state-owned sovereign wealth fund primarily to secure access to natural resources and pursue strategic investment opportunities overseas.
International finance International trade
China, India, sovereign wealth funds
Are sovereign wealth fund investments politically biased? Comparing mutual and sovereign funds
Javier Santiso, Rolando Avendaño 03 February 2010
Are sovereign wealth funds substantially different in their investment choices from other types of institutional investor? This column compares the holdings of two groups of sovereign and mutual funds – and finds a few differences. Contrary to popular belief, evidence suggests that sovereign and mutual funds’ investments do not differ when looking at the political profile of targeted countries.
Sovereign wealth funds have long provoked controversy (Hillebrand 2008, Truman 2008). The recent debate on sovereign wealth funds culminated with the promulgation of the Santiago Principles on fund transparency, investment orientation, and accountability. According to OECD principles, sovereign wealth funds should be considered on the same basis as other institutional investors and be submitted to investment regulations similar to those of, say, public pensions, mutual, or hedge funds.
International finance Politics and economics
sovereign wealth funds, financial regulation, political bias
Sovereign wealth funds and financial stability
Tao Sun, Heiko Hesse 30 March 2009
The present financial crisis has placed financial stability at the forefront of policy discussions. At the same time, sovereign wealth funds have become much more significant players over the past two years. This column summarises the results of some recent studies about sovereign wealth funds and their implications for financial stability. Overall, the existing research on SWFs suggests that they can be a stabilising force in global financial markets.
Sovereign wealth funds (SWFs) are defined as special-purpose investment funds or arrangements owned by the general government. They are often funded by balance of payments surpluses, official foreign currency operations, proceeds of privatisations, fiscal surpluses, or receipts resulting from commodity exports. Their total assets have been estimated at $2-3 trillion, but many of them have suffered unrealised losses stemming from the ongoing financial crisis.
sovereign wealth funds
Sovereign wealth funds, governance, and reserve accumulation
Joshua Aizenman, Reuven Glick 16 January 2009
This column provides evidence that there is great deal of difference between the governance standards of the economies in which sovereign wealth funds have been established and the standards of the industrial economies in which they are seeking to invest. It also discusses how the expansion of asset holdings of sovereign wealth funds may reduce official reserve holdings.
Sovereign wealth funds (SWFs) are saving funds controlled by sovereign governments that hold and manage foreign assets. While not a new phenomenon, the recent activities and projected growth of SWFs have stirred debate about the extent to which their size may allow them to affect financial markets and their policies may be driven by non-economic considerations.
foreign exchange reserves, sovereign wealth funds, governance
A European framework for foreign investment
Nicolas Véron, Lars-Hendrik Röller 06 December 2008
European security concerns about foreign investment have produced opaque and inconsistent responses by national governments. This column makes the case for establishing a EU authority to address the issue in an open, comprehensive and sustainable manner rather than allowing the proliferation of disparate national regulatory initiatives. The openness of the EU investment environment is at stake.
Europeans have long prided themselves of their ability to remove border signs. For themselves, they have achieved the EU’s own internal market, first for coal and steel and then for all other goods – even though the job remains to be finished on certain services – as well as, increasingly, for labour and capital.
EU policies International finance
sovereign wealth funds, protectionism, illiberal countries
Europe doesn’t need sovereign wealth funds
Kavaljit Singh 20 November 2008
French President Nicholas Sarkozy has proposed that European nations create sovereign wealth funds to protect national companies from foreign “predators.” This column says that idea is protectionist and without merit. Emerging economies establish sovereign wealth funds to invest foreign reserves or commodity revenue – not to bail out domestic firms and stifle global competition.
In a hard-hitting speech to the European Parliament in Strasbourg on October 21, French President Nicolas Sarkozy proposed that European countries create sovereign wealth funds to protect national companies from foreign “predators.”
EU, sovereign wealth funds
Asian exchange rate asymmetry
Victor Pontines, Ramkishen S. Rajan 19 November 2008
Why are emerging Asian economies accumulating massive foreign exchange reserve stocks? Much research has focused on precautionary or export-promoting motives. This column argues that emerging economies are pursuing exchange rate management with a strong bias towards preventing appreciation.
Following Calvo and Reinhart (2002), it has become commonplace to argue that there is a “fear of floating” among emerging economies in Asia and elsewhere. However, the sustained reserve build-up in emerging Asian economies since 2000 until 2008 (with the onset of the global financial crisis) suggests that they are more sensitive to exchange rate appreciation than depreciation.
Exchange rates Macroeconomic policy
sovereign wealth funds, reserves, Asia, fear of floating
Harnessing windfall revenues in developing economies
Rick van der Ploeg, Anthony Venables 02 October 2008
How should developing countries spend an unexpected surge in foreign assistance or natural resource revenues? This column makes the case for establishing a sovereign wealth fund and examines the market imperfections that may constrain such a policy.
A temporary windfall of foreign aid or natural resource revenues poses interesting policy challenges. Should the revenues be used for government investment in public infrastructure to stimulate economic activity? Should the government use the windfall income to reduce government debt and thereby lower interest rates and boost private sector investment? Should the extra income be used to provide more education, health care and other public goods to improve the quality of life or transferred directly to citizens through tax cuts?
Development Macroeconomic policy
sovereign wealth funds, Windfall revenues
Four myths about sovereign wealth funds
Edwin M. Truman 14 August 2008
Sovereign wealth funds are a hot topic, but they’re poorly understood. Four popular myths are that sovereign wealth funds are (1) about “them” not “us”, (2) all the same in their opacity, (3) a net benefit to the international financial system, and (4) not like hedge funds. This column explodes those myths and outlines a framework of reciprocal responsibility for sovereign investors and their investment recipients.
Sovereign wealth fund, a generic description of governmental investment activities, is a term that was coined just three years ago by Andrew Rozanov (2005). I identify sovereign wealth funds (SWFs) as separate pools of government-owned or government-controlled financial assets that include some international assets, which total at least $4 trillion by my latest count. Sovereign wealth funds take many forms and are designed to achieve a variety of economic and financial objectives – from stabilisation to intergenerational wealth transfer.
sovereign wealth funds