Sovereign Wealth Funds Swfs A Brief Sketch Vrk100 25102007
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- Words: 574
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AUTHOR: Rama Krishna Vadlamudi
[email protected]
MUMBAI October 10th, 2007 FOR REGULAR UPDATES ON AUTHOR'S DOCUMENTS: JUST CLICK
www.pdfcoke.com/vrk100 OR http://groups.google.co.in/group/random-thoughts-on-investments/files?hl=en&&sort=date
Sovereign Wealth Funds (SWFs) are funds that are created by Governments out of their foreign exchange reserves or other surpluses for better returns through investment in risky assets. Some examples of SWFs are Government of Singapore Investment Corporation (GIC) and Temasek Holdings of Singapore; China Investment Corporation (CIC); Abu Dhabi Investment Authority; Govt. Pension Fund of Norway; and Korea Investment Corporation of South Korea.
Funds, like, GIC and Temasek have invested in securities of various blue chip companies in India. A few months back, China had invested USD 3 billion in the IPO of Blackstone Inc, a private equity firm in the USA. Most of the investments by SWFs are in the form of portfolio investments; even though, some investments are made in acquiring strategic stakes in companies for control over management policies. In India too, an idea was mooted to set up a sovereign wealth fund. However, as of now, RBI is not in favour of establishing any such fund. Liquidity in the world has gone up by several times in the past four to five years; aided in part by surging oil prices, which had risen from USD 20 per barrel in 2003 to USD 90 per barrel recently. Oil-rich countries, like, Russia, the UAE, and Saudi Arabia have been rolling in petrodollars for the past four years ever since the US invasion of Iraq. The foreign exchange reserves of several countries have been on a steep rise. For example, China has amassed reserves worth USD 1,430 billion according to the latest figures. It is estimated that the total amount of funds that are managed by SWFs the world over is in the region of USD 2,500 billion; a staggering and awesome figure by any account. According to a forecast by Morgan Stanley, the total funds may reach USD 6,500 billion by 2011. With crude oil prices on the cusp of touching USD 100 per barrel very soon, there is no gainsaying the fact that the reserves of oil-rich countries will continue to soar; thus enabling these funds to play a much bigger role in the world economy. The amounts of funds that are managed by some SWFs are (assets managed in USD billion): Abu Dhabi Investment Authority (875); GIC (330); Temasek (100); CIC (300); and Norwegian Govt. Pension Fund (300). These funds have been funneling huge sums into economies of emerging markets creating a surge in the equity prices of EMs. Sovereign Wealth Funds are established to earn better returns for the governments’ surpluses. To attain superior returns, the funds have been moving towards riskier returns, like, equities and private equity. It is interesting to watch whether the funds will be able to achieve their objective of better returns. One more important thing to note here is that the details of returns or portfolios may not be subjected to public scrutiny giving these funds immunity from any criticism when poor returns stare at them. In this context, it is worth mentioning that China had made a notional loss of 20% when its equity investment in Blackstone Inc’s had depreciated after a fall in the share price of the latter a few weeks back. Such is the investment wisdom of the smarty money managers from Communist China!
Picture courtesy: Google
Rama Krishna Vadlamudi, MUMBAI. [email protected]. Oct. 25th, 2007
Page 2 of 2
[email protected]
MUMBAI October 10th, 2007 FOR REGULAR UPDATES ON AUTHOR'S DOCUMENTS: JUST CLICK
www.pdfcoke.com/vrk100 OR http://groups.google.co.in/group/random-thoughts-on-investments/files?hl=en&&sort=date
Sovereign Wealth Funds (SWFs) are funds that are created by Governments out of their foreign exchange reserves or other surpluses for better returns through investment in risky assets. Some examples of SWFs are Government of Singapore Investment Corporation (GIC) and Temasek Holdings of Singapore; China Investment Corporation (CIC); Abu Dhabi Investment Authority; Govt. Pension Fund of Norway; and Korea Investment Corporation of South Korea.
Funds, like, GIC and Temasek have invested in securities of various blue chip companies in India. A few months back, China had invested USD 3 billion in the IPO of Blackstone Inc, a private equity firm in the USA. Most of the investments by SWFs are in the form of portfolio investments; even though, some investments are made in acquiring strategic stakes in companies for control over management policies. In India too, an idea was mooted to set up a sovereign wealth fund. However, as of now, RBI is not in favour of establishing any such fund. Liquidity in the world has gone up by several times in the past four to five years; aided in part by surging oil prices, which had risen from USD 20 per barrel in 2003 to USD 90 per barrel recently. Oil-rich countries, like, Russia, the UAE, and Saudi Arabia have been rolling in petrodollars for the past four years ever since the US invasion of Iraq. The foreign exchange reserves of several countries have been on a steep rise. For example, China has amassed reserves worth USD 1,430 billion according to the latest figures. It is estimated that the total amount of funds that are managed by SWFs the world over is in the region of USD 2,500 billion; a staggering and awesome figure by any account. According to a forecast by Morgan Stanley, the total funds may reach USD 6,500 billion by 2011. With crude oil prices on the cusp of touching USD 100 per barrel very soon, there is no gainsaying the fact that the reserves of oil-rich countries will continue to soar; thus enabling these funds to play a much bigger role in the world economy. The amounts of funds that are managed by some SWFs are (assets managed in USD billion): Abu Dhabi Investment Authority (875); GIC (330); Temasek (100); CIC (300); and Norwegian Govt. Pension Fund (300). These funds have been funneling huge sums into economies of emerging markets creating a surge in the equity prices of EMs. Sovereign Wealth Funds are established to earn better returns for the governments’ surpluses. To attain superior returns, the funds have been moving towards riskier returns, like, equities and private equity. It is interesting to watch whether the funds will be able to achieve their objective of better returns. One more important thing to note here is that the details of returns or portfolios may not be subjected to public scrutiny giving these funds immunity from any criticism when poor returns stare at them. In this context, it is worth mentioning that China had made a notional loss of 20% when its equity investment in Blackstone Inc’s had depreciated after a fall in the share price of the latter a few weeks back. Such is the investment wisdom of the smarty money managers from Communist China!
Picture courtesy: Google
Rama Krishna Vadlamudi, MUMBAI. [email protected]. Oct. 25th, 2007
Page 2 of 2
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