Evolving Roles Of Sovereign Wealth Managers After The Financial Crisis: Past, Present And Future

by Bernard Lee

Overview

Are SWFs Potential Causes for Concern?; Research on SWF Investing; Implications to Global Imbalances; Should there be Structural Solutions prior to Launching Rescue Attempts; Can Sovereign Wealth Funds Save the Global Economy?; Potential Policy Implications; Summary; Past Realities: Brief History of Sovereign Wealth Management; Factors Impacting Investing Behavior; Risk and Performance Analysis; Summary; Evolving Roles: Introduction; Abstract Model of Global Economy; Potential Outcomes of Policy Interventions; Implications to SWF Investing; Summary; Future Directions: Evolving Global Financial Landscape; Thinking Ahead; Investment Policy Implications; Summary; Conclusions.

Consider these phenomena:
Savers at surplus countries are often “penalized” by astronomical consumer prices, while spenders at debtor countries enjoy bargain basement prices;Silicon Valley continues to be the global leader in R&D and innovation despite chaos in public finance; and Surplus countries worry about holding potentially worthless IOUs issued by elected debtor governments.

In this book, Professor Lee has tried to better understand sovereign wealth management in the context of saver and debtor countries, by presenting a unified model that can explain these observed phenomena. His attempt is a clear departure from traditional theories, in which these observations would be considered aberrations from “standard assumptions”. Although no model is perfect, this new framework can be useful to explain why, for example, it will be bad economic news for all if saver countries use their public surpluses to hoard food and fuel.

This accessible book is built from a scholarly paper presented by Professor Lee at the venerable Annual Meeting of the American Economic Association.

Product Details

ISBN-13:	9789814452472
Publisher:	World Scientific Publishing Company, Incorporated
Publication date:	01/23/2014
Pages:	120
Product dimensions:	6.00(w) x 9.10(h) x 0.50(d)

Table of Contents

Preface vii

Acknowledgments xi

List of Figures xvii

List of Tables xix

1 Overview 1

1.1 Are SWFs Potential Causes for Concern? 1

1.2 Research on SWF Investing 4

1.3 Implications to Global Imbalances 7

1.4 Should there be Structural Solutions prior to Launching Rescue Attempts? 8

1.4.1 Restoration of Gold Standard 8

1.4.2 "Printing Money" Ad Infinitum 9

1.4.3 Issuing an Alternative Trading Currency 10

1.5 Can Sovereign Wealth Funds Save the Global Economy? 11

1.5.1 SWF Performance Objectives 11

1.5.2 Intervening in a Financial Crisis 12

1.6 Potential Policy Implications 13

1.7 Summary 17

2 Past Realities 19

2.1 Brief History of Sovereign Wealth Management 19

2.1.1 General Landscape 19

2.1.2 Excess Reserve Accumulation 20

2.1.3 "Free" Market Capitalism 21

2.1.4 Rescuer of Last Resort 23

2.1.5 Alpha and Size 24

2.1.6 Non-Investment Considerations 25

2.2 Factors Impacting Investing Behavior 27

2.2.1 Assets Under Management 27

2.2.2 Investment Objectives and Performance Benchmarks 28

2.2.3 Constraints and Regulations 33

2.3 Risk and Performance Analysis 36

2.3.1 Return Analysis Example - Norway Government Pension Fund 37

2.3.2 Risk Analysis Example - Temasek Holdings 39

2.3.3 Practical Allocation Between Active and Passive Portfolios 45

2.4 Summary 46

3 Evolving Roles 47

3.1 Introduction 47

3.1.1 Motivation 47

3.1.2 Recap on the Lee (2006) Approach 49

3.1.3 Roadmap 53

3.2 Abstract Model of Global Economy 53

3.2.1 Basic Descriptions 53

3.2.2 Country A - Rich in Resources 55

3.2.3 Country B - Rich in Labor 57

3.2.4 Country C - Rich in Intellectual Properties/Innovation 58

3.2.5 Analysis in the Absence of Policy Actions 61

3.3 Potential Outcomes of Policy Interventions 64

3.3.1 Intervention Policy 1 - Restoration of a Gold Standard 65

3.3.2 Intervention Policy 2 - "Printing Money" Ad Infinitum 66

3.3.3 Intervention Policy 3 - Issuing Alternative Trading Currencies 67

3.4 Implications to SWF Investing 69

3.4.1 SWF Asset Allocation in Typical Markets 70

3.4.2 SWF Allocation under Market in Distress 73

3.4.3 SWF Participation in Rescue Efforts 74

3.5 Summary 77

4 Future Directions 79

4.1 Evolving Global Financial Landscape 79

4.1.1 Euro Crisis in Slow Motion 79

4.1.2 Impacts on Third-Party Bystanders 82

4.2 Thinking Ahead 85

4.2.1 Scenario 1 - Default of Major Debt Issuer 85

4.2.2 Scenario 2 - Mass Hoarding of Commodities 86

4.2.3 Scenario 3 - Conflicts in East Asia 87

4.3 Investment Policy Implications 88

4.3.1 Surplus Countries 88

4.3.2 Deficit Countries 89

4.3.3 New Gold Standard 90

4.4 Summary 91

5 Conclusions 93

Bibliography 99

Index 101