Sovereign Wealth Fund


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Sovereign Wealth Fund

  1. 1. Sovereign Wealth Fund and Foreign Exchange Management<br />By <br /> Group 2 <br /> IFT – Section D<br /> Deepika Dipika<br /> Dibyakant Gaurav<br /> Kirti Mihir<br />
  2. 2. SWF - Definition<br />An investment fund managed by a government or another organization on behalf of a nation or sovereign state.<br />It is composed of Global Financial Assets:<br />Stocks<br />Bonds<br />Property<br />Precious metals<br />
  3. 3. Purpose of SWF<br />Sovereign wealth funds can be characterized as maximizing long term return, vis-à-vis the foreign exchange reserves serving liquidity management.<br />To hold, manage, or administer assets to achieve financial objectives<br />Reduce the volatility of government revenues <br />Counter the business cycles&apos; adverse effects on the national economy <br />To build up savings for future generations <br />Assist monetary authorities dissipate unwanted liquidity <br />
  4. 4. Sources of SWF<br /><ul><li>Current Account surpluses
  5. 5. Profits from sale of natural resources
  6. 6. National Assets</li></li></ul><li>History Of SWF<br />
  7. 7. Types of SWF<br />
  8. 8. Types-Based on Objectives<br />
  9. 9. Facts & Figures<br />53 SWFs, Estimated at $3.8 Trillion<br />International Working Group of <br /> SWFs<br />Funding by Source <br /> Oil & Gas-61%<br /> Others-39%<br />Funding by Region<br /> Middle East-44%<br /> Asia-35%<br />
  10. 10. Largest Funds – by AUM<br />SOURCE- WWW.SWFINSTITUTE.ORG<br />
  11. 11. Linaburg-Maduell transparency Index<br />Wealth Fund Institute by Carl Linaburg and Michael Maduell.<br />Method of Rating Transparency<br />Based on 10 Essential Principals 2nd Quarter 2009 LMTI ratings<br />SOURCE- WWW.SWFINSTITUTE.ORG<br />
  12. 12. Deals in recent years<br />
  13. 13. SWF – Strategy & Transparency<br />
  14. 14. SWF - Strategy<br />No single well defined strategy.<br />Objective specific<br />Focus on emerging markets and diversification<br />Equity investments: Portfolio, Index and Mixed approach<br />Example: ADIA, Temasekand CIC<br />
  15. 15. Impact on global Financial stability<br />POSITIVE – Reduce volatility and Support function.<br />NEGATIVE – Currency movement and announcement effect.<br />Role similar to those of Hedge funds and Financial Institutions. <br />
  16. 16. Myths About SWF<br />Sovereign wealth funds are all the same in their opacity<br />Sovereign wealth funds are a net benefit to the international financial system<br />Sovereign wealth funds are not like hedge funds<br />
  17. 17. FOREX Management Indian View<br />Motives of Maintaining FOREX Reserves<br /><ul><li>Maintaining Confidence in Monetary and exchange rate policies
  18. 18. Enhancing capacity to intervene in FOREX markets
  19. 19. Limiting External Vulnerability
  20. 20. Backing for Good credit rating
  21. 21. Comfort zone provision for Market participants</li></ul>P- Notes Issue October 2007 to August 2008<br />Huge reserves gone drastically down during Financial crisis.<br />Indian FOREX reserve investment in US treasuries which is lowest in the world.<br />
  22. 22. What to do with these reserves in future?<br />Keep some amount of reserves for Imports - 3 to 6 months , some for Contingency <br />For rest reserves the Options are:<br />Accumulate reserves<br />SWF of INDIA<br />Equities & Fixed income securities<br />Energy Security for future growth<br />IMF & World Bank<br />Investment in Own country<br />Infrastructure<br />
  23. 23. Indian SWF imagination or Reality……<br />RBI with another independent entity to manage<br />Initial $ 5 Billion corpus<br />Can reduce burden of Oil & Gas subsidies like Administered price mechanism.<br />State bank of India in talks with major SWF’s of the world. <br />
  24. 24. Thank You<br />