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5/14/2008
Brazilian real devalues against USD after sovereign wealth fund announcement
The Brazilian real opened weaker against the U.S. dollar Wednesday on news that part of the dollars for the country's new sovereign wealth fund will be provided by Brazilian Treasury bond issues. The real opened at BRL1.670 to the dollar in spot contract trading on the Brazilian Mercantile and Futures Exchange after ending at BRL1.656 to the dollar Tuesday. The central bank already regularly buys dollars to build reserves, and news that the Treasury will also act pressured the local currency and opens the possibility of conflicts between the two institutions. The fund will be used to contain cyclical volatility in the Brazilian economy and support Brazilian bond and debenture issues. Finance Minister Guido Mantega did not specify how large the fund might be.
read more: FXSTREET
5/14/2008
SOFAZ exhibits a high rating in transparency
After reassessment, the Sovereign Wealth Fund Institute received up-to-date reports audited by Ernst & Young for SOFAZ, Azerbaijan's state oil fund. Reports revealed a wealth of information including external managers Clariden, and Deutsche Asset Management that upgraded the fund to a 9.
read more: APA
5/13/2008
Thailand considers setting up a sovereign wealth fund
Thailand has reserves stemming from non-commodity sources. The central bank is seeking a feasibility study to see if it is beneficial or not to invest their foreign reserves into other asset classes. Another hot topic in the discussion is to see whether the fund would seek strategic controls in companies or to just purely seek higher investment returns.
According to the Nation, “The Bank of Thailand will conduct a thorough feasibility study before making a decision on whether to establish a sovereign wealth fund, Governor Tarisa Watanagase said last week.”
read more: The Nation
5/10/2008
China Investment Corporation sees advantages in the Global Crisis
According to Thomson Reuters, “’The current international market turbulence has produced unprecedented investment opportunities,’ said Lou Jiwei, head of the $200 billion sovereign wealth fund, established last September to earn higher returns on part of China's vast official foreign currency reserves.
But Lou told a financial conference in Shanghai that CIC would not try to take advantage of the turbulence by acting as a hedge fund and betting on the performance of the economies of individual countries.”
Sovereign wealth funds continue to act as economic stabilizers in the financial markets. Funds like CIC, Abu Dhabi Investment Authority, and the like continue to look for great investment opportunities for the long haul.
read more: Thomson Reuters
5/5/2008
International Working Group of Sovereign Wealth Funds is Established to Facilitate Work on Voluntary Principles
The IMF states "an International Working Group of Sovereign Wealth Funds (IWG) was formally established by the meeting to present by October 2008 a set of SWF principles that properly reflects their investment practices and objectives."
read more: IMF
5/1/2008
Added new SWF from Bahrain
Established in 2006, Bahrain Mumtalakat Holding Company is the chief investment division of the government of Bahrain. The primary funding source of wealth comes from oil. Currently, their investment portfolio is heavily weighted into the local Bahrain economy in a number of industries ranging from real estate to telecommunications.
4/28/2008
Saudi Arabia plans to launch U.S. $5.3 billion SWF
Saudi Arabia’s Public Investment Fund is in the “final stages” of launching the kingdom’s first sovereign wealth fund. But its early financial commitment will disappoint those hoping for another megafund.
Mansour Al-Maiman, secretary- general of the internally focused PIF, said an investment company wholly owned by PIF would be set up with initial capital of SR20bn ($5.3bn).
read more: Financial Times
4/28/2008
US Senate Committee Hearing on Sovereign Wealth Funds
The US Senate Committee had a hearing on the Turmoil in U.S. Credit Markets: Examining the U.S. Regulatory Framework for Assessing Sovereign Investments.
David Marchick, a Managing Director and Global Head of Regulatory Affairs of The Carlyle Group said, "Second, the United States has a robust, layered set of laws and regulations that protect important governmental interests associated with any investment, sovereign or otherwise. FINSA protects against threats to national security, and CFIUS has demonstrated its willingness to block or mitigate problematic investments. DOD has its own set of regulations to protect the defense supply chain and classified information. Hart-Scott-Rodino triggers antitrust reviews for any significant acquisition.
And in any sensitive sector, there are a host of laws and regulators that provide additional protection. In the chemicals industry, for example, there are five federal regulators focused on safety, security, transportation and other issues; several state-level regulators; and more than a dozen federal statutes that impose various, wide-ranging controls on chemical investments and operations. The Fed, Treasury, OCC and OTS scrutinize investments in the banking sector. Similar laws and regulatory oversight exist in the telecommunications, energy, pharmaceutical, and transportation sectors, among others. Even if there were cause for concern associated with sovereign wealth funds, our existing legal and regulatory structure should capture and fix – or block – any problematic investments. "
read more: US Senate Committee
4/22/2008
KIC gets an upgrade to a 9 in Transparency Rating
The Korea Investment Corporation (KIC) gets an upgrade from an 8 to 9 in transparency rating as they listed their external managers and increased essential information to their fund site.
read more: Linaburg-Maduell Transparency Index
4/22/2008
US Treasury- Proposed Regulation on Mergers, Acquisitions, and Takeovers by Foreign Persons
"Washington, D.C.--The Treasury Department today issued proposed regulations that implement the Foreign Investment and National Security Act of 2007 (FINSA). The proposed regulations provide an update to regulations issued in 1991 that govern the Committee on Foreign Investment in the United States (CFIUS) and its process for national security review of certain foreign investments in U.S. businesses. They reflect reforms made to the CFIUS process by FINSA and the CFIUS executive order issued by President Bush on January 23 of this year.
'These regulations reflect America's strong and continued commitment to safeguarding U.S. national security in a manner that reinforces the longstanding U.S. policy of welcoming foreign investment. The proposed regulations increase clarity and make additional improvements based on experience,' said Assistant Secretary for International Affairs Clay Lowery."
4/21/2008 - US Treasury- Proposed Regulation on Mergers, Acquisitions, and Takeovers by Foreign Persons
read more: US Treasury Press Release
4/21/2008
India might create reserve investment corporation
During a speech last week in Washington, the Governor of the Reserve Bank of India, Yaga Vednugopal Reddy reinforced beliefs that India has been in the works of creating a reserve investment corporation, a type of sovereign wealth fund. In his speech, Yaga Vednugopal Reddy stated that India’s foreign currency reserves, which currently stand as the World’s fourth-largest, are inhibited by the Reserve Bank’s policy of low risk and liquidity. Reddy continued his statement with, “Given the limitations placed on the central bank by its mandate, it will be appropriate to bestow this responsibility on a different sovereign entity.”
The type of sovereign wealth fund presumed to be created is a reserve investment corporation, which manages non-commodity based assets to increase returns on reserves. These assets, in the form of excess foreign currency reserves, were reported this past February by the IMF to be valued at U.S. $301.235 billion [1]. The goal of the presumed Fund will be to earn higher returns through diversifying into equity investments rather than lower risk investments such as treasury bonds.
While Reddy’s speech expressed concerns of dynamic risks involved with managing a sovereign wealth fund, India has a bit of experience in the world of sovereign investment vehicles. The India Infrastructure Finance Company Limited (IIFC), established in August of 2004, provides long-term debt for financing world-class infrastructure in India. India’s Prime Minister, Dr. Manmohan Singh sits as chairman of the IIFC. The Ministry of Finance of India is credited for the creation of the IIFC after deliberations with the Planning Commission, and financial institutions. The creation of the IIFC was approved by the committee on infrastructure. This vehicle, which prefers Public Private Partnership Projects, has experience with raising funds from domestic and external markets and lending up to 20% of the needed capital for infrastructure projects. Aside from equity, the IIFC raises long-term debt through currency debt raised on the open market, debt from multilateral and bilateral institutions, and foreign currency debt through external commercial borrowings.
Although the IIFC differentiates itself on a multitude of levels from a sovereign wealth fund, there are high levels of experience that may be related to managing a new sovereign entity. One may question whether or not the IIFC is ready to take on the new responsibility of managing a sovereign wealth fund, but without the use of external managers there is no other internal government-owned authority more appropriate for the job.
The views in this publication are expressed by Carl Linaburg.
Carl Linaburg is the cofounder and deputy director for the Sovereign Wealth Fund Institute.
www.swfinstitute.org
Back to Carl Linaburg's Research
4/15/2008
Japan Finance Minister buys off on SWF Code of Conduct Concept
Many of the G-7 countries are signing on to the idea of a code of conduct for sovereign wealth funds as some of the sovereign funds continue to protest the concept. At an IMF meeting, the Japanese Finance Minister Fukushiro Nukaga said "I support the IMF's action to make full use of its experience in monitoring movements in international capital flows, and formulate best practices in the areas of governance, institutional arrangements and transparency."
read more: Japan Times
4/11/2008
Arnold Schwarzenegger, the Governor of California opposes divestment bill for Pension Funds regarding Sovereign Wealth Funds
UPDATE: The bill has been withdrawn due to little support.
The Governor of California makes the case of why this divestment bill will be ineffective and will only end up hurting pension investors.
read more: LA Times
4/7/2008
60 Minutes on the China Investment Corporation
The Sovereign Wealth Fund Institute contributed information to CBS News 60 minutes for this segment that was aired on April 6th, 2008.
4/4/2008
China's FX Manager makes a French Investment
The State Administration of Foreign Exchange (SAFE) which manages China’s foreign reserves which are worth around US$1.65 trillion is acting more like a sovereign wealth fund these days. It has recently acquired a large stake of around €1.8 billion in the heavily capitalized French oil company Total.
4/4/2008
Another New SWF Joint Venture Fund
The Vietnamese State Capital Investment Corporation and Qatar Investment Authority have set an agreement to create a US$ 1 billion investment fund to invest in Vietnamese companies. We believe that Vietnam is trying to open up its vast number of state owned enterprises to foreign investors.
3/31/2008
Linaburg-Maduell Transparency Index
The Linaburg-Maduell Transparency Index was developed at the Sovereign Wealth Fund Institute by Carl Linaburg and Michael Maduell.
The Linaburg-Maduell transparency index is a method of rating transparency in respect to sovereign wealth funds. Pertaining to government-owned investment vehicles, where there have been concerns of unethical agendas, calls have been made to the larger “opaque” or non-transparent funds to show their intentions. As of March 2008, the Government Pension Fund-Global of Norway ranks second among the largest sovereign wealth funds with approximately US$ 380 billion, this fund also ranks among the highest in transparency.
Norway currently leads the pathway to reducing the need for a code of conduct, possibly to the benefit of all sovereign investors. This index of rating transparency was developed around this fund, as it is known to be the pinnacle of clear investment intentions.
This index is based off ten essential principles that depict sovereign wealth fund transparency to the public. The following principles each add one point of transparency to the index rating. The index is an ongoing project of the Sovereign Wealth Fund Institute. The minimum rating a fund can receive is a 1, however, the Sovereign Wealth Fund Institute recommends a minimum rating of 8 in order to claim adequate transparency. Transparency ratings may change as funds release additional information. There are different levels of depth in regards to each principle, judgment of these principles is left to the discretion of the Sovereign Wealth Fund Institute.
| Point |
Principles of the Linaburg-Maduell Transparency Index |
| +1 |
Fund provides history including reason for creation, origins of wealth, and government ownership structure |
| +1 |
Fund provides independently audited annual reports |
| +1 |
Fund provides percent ownership of company holdings, financial returns, and geographic locations of holdings |
| +1 |
If applicable, the fund provides size, composition, and return of foreign exchange reserves |
| +1 |
Fund provides guidelines in reference to ethical standards, investment policies, remuneration policies, and enforcer of guidelines |
| +1 |
Fund provides clear strategies and objectives |
| +1 |
If applicable, the fund clearly identifies subsidiaries and contact information |
| +1 |
If applicable, the fund identifies external managers |
+1 |
Fund manages its own web site |
| +1 |
Fund provides main office location address and contact information such as telephone and fax |
|
Developed by Carl Linaburg and Michael Maduell
3/25/2008
ADIC and QIA launch first sovereign wealth fund joint venture
According to Reuters, The Qatar Investment Authority and the International Petroleum Investment Company, a subsidiary of the Abu Dhabi Investment Council, will invest US$ 2 billion in a new fund for global acquisitions, the managing director of IPIC said on Tuesday. Both sovereign investors plan to split the new fund equally in half by each providing US $1 billion. "We plan to invest in all sectors, including oil and petrochemicals," Khadem al-Qubaisi told Reuters by telephone in an interview.
read more: Reuters
3/21/2008
IMF Board Endorses Work Agenda on Sovereign Funds
According to the IMF, "The IMF expects its work on SWFs will provide a public good that may be used by existing and new SWFs to run sound organizations, with good governance structures, robust risk management frameworks, and appropriate transparency. These practices should also help allay some of the prevailing concerns about SWFs, reduce protectionist pressures, and allow the international financial system to remain open."
The IMF's Board has given the go ahead on the creation of a SWF code of conduct. By October they plan to have a code of conduct drafted.
read more: IMF
3/21/2008
Sovereign Wealth Transparency & Investment Strategy
The picture below illustrates the upper echelon of SWFs and their investment approach relative to transparency. This is the institutes's most recent graph.
3/20/2008
US Treasury, Singapore, Abu Dhabi agree on sovereign wealth fund policies
The US Treasury and the governments of Singapore and Abu Dhabi said today they have agreed on a set of principles on sovereign wealth fund (SWF) investing and receiving SWF investments, and said the principles emphasize transparency, non-politicization and avoidance of protectionism. Singapore and Abu Dhabi 'are showing real leadership,' Treasury Secretary Henry Paulson said in a statement after a meeting with representatives from the two nations and their SWFs.
read more: Forbes
3/19/2008
Singapore to act on sovereign wealth funds
The Times reports that, “The Singapore Government has indicated that it is willing to adopt a controversial new code of practice that would regulate the investment decisions of sovereign wealth funds (SWFs) if Western countries commit to not blocking future acquisitions.”
This stems from pressure by Western countries. The International Monetary Fund, European Union and US Department of Treasury are in talks with a number of sovereign funds to hammer out a voluntary code of practice that would offer more transparency and accountability. It seems that the Singapore government is taking a more proactive approach of self regulation.
source: The Times
3/12/2008
Around 44% of Sovereign Assets are managed by External Managers
Pensions and Investments reports that, “Sovereign wealth funds have an estimated $1.3 trillion already in play with external managers, according to a Cerulli Associates report. That amounts to about 44% of the funds’ estimated $3 trillion in total assets, but the report says several managers believe that proportion will decline over time.”
Many sovereign wealth fund outsource their investment operations. The trend will most likely decline as more sovereign wealth funds will want to take direct stakes in equity investments and increase their investment staff. Attracting top talent is now a huge priority for many sovereign wealth funds.
source: Pension and Investments
3/10/2008
Why CalPERS is not a Sovereign Wealth Fund?
by Michael Maduell
There are significant similarities between public pension funds and sovereign wealth funds. They both control vast pools of capital, have tremendous power over company boards, and have varying degrees of government influence. In fact, a number of sovereign wealth funds have names like the Government Pension Fund of Norway and the Australian Future Fund. In addition, a sovereign wealth fund’s end goals and objectives might share similarities to a domestic public pension, like providing retirement benefits; however, there are some differences between the two.
The main disparity between sovereign wealth funds and public pension funds are their funding sources. Sovereign wealth funds are funded by foreign exchange assets stemming from commodity exports or transfers from current account surpluses. On the other hand, CalPERS and other domestic public pensions are funded by employee and employer contributions. Furthermore, the goals of most public pensions are clear, earn a return to fund projected benefit obligations. Sovereign wealth funds have a variety of goals and most have a mandate to earn excess returns, but is that true for all? Like most public pension funds, CalPERS has transparency and clear return objectives, two characteristics that are typically absent in most sovereign wealth funds.
As with any investment organization, CalPERS has engaged in investment restrictions based on management directives. These directives are based on good citizenship principles such as environmental stewardship, advocating human rights, and fair labor standards. A number of public pensions invest in socially responsible funds such as the Domini Funds which prohibit investments that violate fair labor standards and environmental codes. Their choice to not invest in a company is not a political strategy in the sense of influencing a firm to gain a significant competitive or resource advantage. Instead, it may be an attempt to promote certain types of positive behavior that benefits society. Having fair labor standards and sustainable environmental regulations are a benefit to all people. Is CalPERS buying international companies to ensure sure the firms push contracts, supply deals, or to disclose trade secrets to the US government? The answer is, of course not. Asking this same question about a sovereign wealth fund and the answer may be doubtful. What we can say for certain is that some sovereign wealth funds are too opaque to make a valid assumption about their intentions. If these wealth funds were more transparent, this would alleviate the mystery around them, thus ending the debate regarding political and other motives.
Transparency is a huge concern in many of the sovereign wealth fund debates. In contrast, CalPERS and other public pension funds have common characteristics including their willingness to share information regarding their goals, portfolio holdings, and governance to the public. Although some sovereign wealth funds, such as the Government Pension Fund of Norway are exceptional examples of transparency, many are not. It is important to remember that this fund is funded by foreign exchange assets, in particular oil. It is essential to not demonize sovereign wealth funds for choosing a path of non-transparency, this decision must be respected as the choice of an investor. It is equally vital to distinguish sovereign wealth funds from public pension funds. The two might share some common characteristics but they are different investment vehicles and should not be grouped in an identical investor class.
The views in this publication are expressed by Michael Maduell.
Michael Maduell is the Founder and Chairman of the Sovereign Wealth Fund Institute.
www.swfinstitute.org
Back to Michael Maduell's Research
3/6/2008
Defining the Difference between: SWFs, SOEs, and Public Pension Funds
Due to the unprecedented level of news and requests, below there is a table displaying the differences between the major public investor classes.
3/4/2008
US Congress gauges reaction of other countries to rise of foreign government funds
The Associated Press reports that, “As members of Congress monitor investment in the United States by foreign government-run funds, they are investing time in studying how foreign governments do it.
A congressional watchdog agency, the Government Accountability Office, studied how other countries handle foreign investment, including investment by sovereign wealth funds and other state-owned companies.
The GAO's study, released Friday, found that six out of 10 countries surveyed have expressed concern recently about sovereign wealth funds.”
source: Associated Press
3/1/2008
Transparency of Sovereign Investment
by Carl Linaburg
Possible national securities implications of sovereign wealth funds may be relaxed with the aid of transparency. Although there are positive economic effects for both sides of state-owned investment funds, there will always be a question of whether or not the owners of government investment funds will use strategies that conform to their own political or personal agendas.
On one end, the foreign investor seeks to diversify the dominant origin of the country’s wealth, or seeks higher risk than offered by government treasury bonds. On the side of the domestic businesses, the economy is eager for growth, technologies, and new competition. If domestic parties refuse an investment offer by a foreign government, the investor will need to find other opportunities to spread out its wealth. Uncertainties may further lead to the call for regulation on these funds, which could not only be financially hazardous to large funds but could also destabilize the domestic economy. So far the EU and the IMF have been drafting proposals on creating a voluntary code of conduct, having transparency as one of the key tenants. Others argue that it is the duty of the country receiving the foreign investment to draft its own laws.
The largest subsidiary of the Abu Dhabi investment Council (ADIC), the Abu Dhabi Investment Authority (ADIA) was founded in 1976 by the late former ruler Sheikh Zayed bin Sultan Al Nahyan. As the rulers of the United Arab Emirates have become aware of their diminishing supply of oil, they have taken measures such as the creation of these funds to ensure future economic stability. ADIA is currently the largest state-owned investment fund at an estimated U.S. $875 billion, which makes up about 20-40 per cent of all sovereign wealth funds. Coincidentally, as ADIA is the largest fund it has low transparency and tracking the investments of ADIA may be difficult. An estimation of the investments ADIA has made in the United States comes close to 20%. If ADIA and other large sovereign wealth funds were to suddenly shift their investment strategies outside of North America, the United States could experience economic destabilization.
Transparency in respect to sovereign wealth funds means that the government owners of these funds voluntarily submit pertinent financial information to the public. Financial documentation supporting transparency provided by fund owners may include balance sheets, historical information, investments, target investments, investment strategies, and legal regulations applied by the home country. This information should be easily accessible and balance sheet statements should be updated on a monthly or quarterly basis. The voluntary release of the foreign investor’s intentions and financial information promotes the security of the domestic public and may reduce the need for a code of conduct. Funds such as the Government Pension Fund of Norway have provided transparency without the use of a code of conduct; the issue is getting the rest to follow in line.
The views in this publication are expressed by Carl Linaburg.
Carl Linaburg is the cofounder and deputy director for the Sovereign Wealth Fund Institute.
www.swfinstitute.org
Back to Carl Linaburg's Research
Feb 2008
Jan 2008
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