With the adoption and publication of the Santiago Principles in October , much more is known and understood about SWFs today than, say, five years ago. Yet, much remains to be better explained, especially from an economic and policy angle, about how the funds are evolving as a result of both their greater experience and the important lessons learned from the recent crisis.
It is for these reasons that we decided to publish this book, in which renowned experts explain the SWF phenomenon and discuss the role of SWFs, both domestically and internationally. Some new insights are also provided on the strategic asset allocation choices pursued by the SWFs and their impact on financial markets and macroeconomic stability.
The book starts by describing and explaining SWFs. Specifically, they discuss the conditions under which it would be appropriate for countries to set up an SWF. They consider alternatives to an SWF as a mechanism for managing public savings, as well as policy options when liquidity or stabilization support is needed from an SWF in a balance of payments crisis. The chapter explains how countries have benefited from having SWFs during the global economic and financial crisis, yet are also exposed to additional risks. In Chapter 3 , Kern discusses the political responses in recipient countries to foreign state investments.
He views SWFs and their investments as just one facet of a new phase of globalization, one that will be defined by the global ownership of assets and the participation of emerging markets in the global economy. A better dialogue between SWFs and recipient countries increases the chances of achieving mutually acceptable policy outcomes.
After all, SWFs manage public money that could have been spent domestically rather than invested abroad. A poorly designed SWF can be a source of instability in the home country. The second part of the book starts with a discussion of the Santiago Principles and the process that led to these principles by Das, Mazarei, and Stuart Chapter 5.
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A topical issue is how the principles affect the behavior of SWFs and the attitude of the recipient countries toward SWFs. The road for implementation of the principles is evolving, and there are signs that SWFs are becoming more open and responsive to public policy concerns about their activities. In Chapter 6 , Bossu, Ezejiofor, Laryea, and Liu address the domestic and international law approaches to capital account liberalization relevant to SWF activities, and consider the mandate of the IMF in these areas under its Articles of Agreement. Chapter 7 , by Heath and Galicia-Escotto, sets out the coherent reporting framework and multilateral surveys set up by the international community to support a stable global financial system and the free flow of capital and investment.
Information on data reporting by SWFs is also provided in this chapter. Some observers have suggested that SWFs could partly allay the concerns about possible political motivations behind their activities by investing through fund managers located in the recipient countries. De Palma, Leruth, and Mazarei, in Chapter 8 , examine the usefulness of this proposal by using agency theory.
Their results show that, under reasonable assumptions, the use of fund managers may not necessarily address these concerns. This result could, unfortunately, induce recipient countries to address their concerns through more direct and excessive regulation, which could add to the protectionist trends seen in many countries.
Therefore, to avoid protectionism, SWFs and recipient countries need to work toward greater organizational and operational transparency. The guidance reaffirms the relevance of long-standing OECD investment principles, but also indicates ways in which national security concerns should be handled.
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Knowledge of the investment strategies of SWFs is still incomplete. While some disclose full details of the composition of their portfolios—sometimes down to the individual asset level—and explain risks and returns at length, others are more reserved in disclosure.
He also explains how the —09 global financial crisis may lead to changes in the governance and investment strategies of both SWFs and central banks. One possibility is that the similar investment strategies used by central banks, SWFs, and sovereign pension funds will be replaced by complementary, specialized strategies. A similar perspective is offered by Kunzel, Lu, Petrova, and Pihlman in Chapter 11 , which focuses on the investment objectives of different types of SWFs.
ISBN 13: 9780128009826
In Chapter 12 , Darcet, du Jeu, and Coleman offer a more hands-on perspective on SWF strategic asset allocation issues, describing the steps from determination of objectives to investment decisions, while offering a long-term view of various asset classes. The next three chapters study, from different perspectives and using different methodologies, the concern that SWFs may destabilize international capital markets. Using an event-study approach, Sun and Hesse Chapter 13 examine financial stability issues that arise from the increased presence of SWFs in global financial markets by assessing whether and how stock markets react to the announcements of investments and divestments in firms by SWFs.
Consistent with anecdotal evidence, the results show no significant destabilizing effects of SWFs on equity markets in a variety of market segments. The results suggest that the pattern of global capital flows could change significantly if SWFs shift away from U. These findings are consistent with views prevailing before the crisis and may yet come to pass as the global economy gradually recovers and risk appetite returns. He notes that market concerns could arise as a result of sectoral, geographic, or asset concentration by SWFs.
Although growing, SWFs as a group, as well as individually, are by no means unusual in size; hence, in his view, concerns about their investment activities are likely to remain more politically motivated than market based, reinforcing the importance of transparency. The global financial crisis did not bypass SWFs. Not only did they suffer paper losses on their investments, but some SWFs had to realize those losses because their assets were needed to finance domestic support measures during the crisis.
Commodity-based funds saw their revenue streams decline substantially as the prices of oil and other commodities fell. Therefore, the crisis has forced SWFs to review their strategies, models, parameter assumptions, and risk tolerance. Three chapters focus in more detail on the long-term implications of the crisis.
El-Erian Chapter 16 discusses the opportunities and risks that SWFs face in a world changed by the global financial crisis. There is a need, however, for continuous improvements in the institutional responsiveness of SWFs with regard to their governance, investment processes, and communication. The on-balance positive outlook is reaffirmed in Chapters 17 and 18 , which concentrate more on the risks faced by SWFs.
Recipient countries need to resist financial protectionism. Clearly, these difficult processes require trade-offs between national interests, accountability, and transparency. Rozanov Chapter 18 discusses the importance of analyzing and managing SWF assets in the context of broader national assets and liabilities, and the need to recognize and mitigate the risks that come with an increased role for the state in the local economy.
A. PURPOSE OF THE IFSWF
This involves, among other things, reassessing reserves needs, quantifying contingent liabilities, understanding the investment horizon, realigning the risk tolerance of all stakeholders, and educating politicians and the public. The Chinese way with sovereign wealth April July 1, Sovereign wealth funds: Help when help is needed January With capital markets fragile and expensive, sovereign wealth funds are playing an important role in recapitalizing banks. Sovereign wealth funds: The new rulers of finance Euromoney December State-owned, cash-rich and increasingly influential, sovereign wealth funds have emerged as the most controversial players in the financial markets.
All the constituents — banks, private equity, corporates, hedge funds — want a slice of their action. Just how powerful will the funds become? Getting the basics right It is one thing to want a sovereign wealth fund but to actually set one up is a long and challenging process. Financial institutions weigh up the opportunities The proliferation of sovereign wealth funds is an opportunity and challenge for investment banks and asset managers. The opportunity is clear: potential business.
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I have no qualms in recommending them to interested undergraduate and graduate students. Das, Woosong University "A coherent and comprehensive document embracing an impressive number of timely and topical issues on Asian Finance. A major handbook for students, professors and professionals worldwide interested in the fast-growing Asian financial systems.
Each section is written by highly qualified experts in their respective fields. They consitute a 'must' for practitionners, advanced students, and academic specialists in this field. Many thanks to the editors for this great job. They are comprehensive and useful for both academics and practitioners who seek to improve their knowledge about finance in Asia.
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Help Centre. My Wishlist Sign In Join. Be the first to write a review. Add to Wishlist. Ships in 10 to 15 business days. Link Either by signing into your account or linking your membership details before your order is placed. Description Table of Contents Product Details Click on the cover image above to read some pages of this book! Devotes significant attention to the systematic risk created by banks' exposure to links between real estate and other sectors Explores the implications implicit in the expansion of sovereign funds and the growth of the hedge fund and real estate fund management industries Investigates the innovations in technology that have ushered in faster capital flow and larger trading volumes Industry Reviews "The just published edited volume gives a broad insight into the Asian financial markets Risk Ratings in Asian Banks.
Edward H. Private Wealth Management in Asia. David R. Meyer 3. Meyer 4.