Sovereign wealth funds and their regulation The aim of this work is to provide a comprehensive explanation of the current issue of the role and activities of sovereign wealth funds in financial markets and to try to summarize current international regulatory framework, as well as to outline possible changes in this system. This question comes from description and interpretation of the most important international "soft-law" rules on sovereign wealth funds - the so- called Santiago Principles (Generally Accepted Principles and Practices) and the OECD's related legislation. The reason for selection of this topic is a fact that issues related to existence of sovereign wealth funds and their legal regulation have not been discussed sufficiently in Czech scientific circles. This work is divided into four chapters. The first chapter is an introduction to the aforementioned issues. In the second chapter, which consists of two sections, the work is concentrated on general characteristics of existence of sovereign wealth funds. The first section is focused on definition of the term "sovereign wealth fund", categorization of such funds on the basis of their characteristic features and analysis of legal nature of these funds. The second section is devoted to influence of sovereign wealth funds on financial...

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Thesis (MBA)--University of Stellenbosch, 2010. / Although Sovereign Wealth Funds (SWFs) are not a new phenomenon, they have gained international prominence since 2005 due to their rapid and much publicised growth, as well as government ownership. The objective of this study is to investigate SWFs from the perspective of developing countries and to compare the developing country experience of SWF investment with that of the developed economies of the West. The question that this research report aims to address is whether SWF investment behaviour is more aggressive in developing economies than in advanced economies by being more likely to invest in sensitive sectors of, and to take significant stakes in companies within these sectors in, developing economies? Before this analysis is made, a comprehensive literature study is done consisting of two parts. The first provides an overview of the reasons behind the rise of SWFs and the West‘s discomfort with the phenomenon, focussing on the emergence of state capitalism as a competing socio-political model to free-market democracy. The second part of the literature review gives a broad overview of what constitutes a SWF, its main characteristics and what concerns about SWFs have transpired to date. The researcher uses a narrow definition to differentiate SWFs from other sovereign investor classes, and defines a SWF as a fund: i) owned directly by a sovereign government; ii) managed independently of other state financial institutions; iii) that does not have predominant explicit pension obligations; iv) that invests in a diverse set of financial asset classes in pursuit of commercial returns; and, v) that has made a significant proportion of its publicly-reported investments internationally. The concerns raised in the literature about SWFs as well as the response from the international community and individual recipient countries to these concerns are discussed. In particular, the researcher focuses on the fears expressed by recipient countries that SWFs may invest for non-commercial reasons. To answer the questions raised about SWFs, the researcher assesses the behaviours displayed by these funds by means of an analysis of the transnational transaction data contained in the SWF Institute‘s SWF Transaction Database for the period 1 January 2000 to 31 December 2009. The research results show that SWFs do not appear to target sensitive industries in developing economies more than they would in advanced economies, but it appears that they are willing to gain greater influence and control of the running of the organisations in which they invest if those organisations are based in the developing world.

天然資源價格高漲，及全球貿易失衡，造成新興國家累積大量美元資產，資本市場自由化、投資商品多元化，促使主權基金備受矚目。擁有高額外匯存底的台灣，是否需成立主權基金，成為國內學者專家關注議題。贊成者認為可以降低持有外匯存底機會成本，增加財政收入；扶植國內產業、提升國際競爭力，反對者認為主權基金並非穩賺不賠；容易特權干預、政商勾結，不符合企業報酬最大化原則。各種研究報告顯示主權基金有可能變成金融巨獸，但是，歷經金融海嘯的洗禮，面對投資績效與保護主義雙重壓力，會不會逐漸萎縮泡沫化，值得進一步觀察與研究。 本篇論文希望透過有關文獻的整理與回顧，對主權基金相關概念做一彙整與分析，歸納主要主權基金之經驗，包括政治環境、資產規模與追求目標等共同屬性，與台灣財政、經濟現況做相關性研究，佐以其他國家成立主權基金與否原因之比較結果，傾向現階段台灣以尚不需成立主權基金為宜。 關鍵詞：主權基金、外匯存底 / The prices of natural resources have increased, while global trade has became unbanced; as a result, the developing countries have accumulated lots of reserves assets, which are invested in diversified financial products. The above situation has caused Sovereign Wealth Funds (SWFs) to attract a lot of attention. This study investigates whether Taiwan, should establish its own Sovereign Wealth Fund. Supporters of the SWF believe that it will reduce the opportunity costs of holding foreign exchange reserves while increasing revenues, supporting domestic industries, and enhancing international competitiveness. In contrast, opponents of the SWF argue that it is too risky, easy prey to government and business collusion as well as corruption. Various studies indicate that SWFs may become financial giants, but after the latest financial crisis, investment performance is limited by conservative hedging. The new development of SWFs are worthy of further observations and research. This paper aims to review the literature on SWFs. It goes through the world’s major SWFs, asset scales and objectives. The study concludes that due to Taiwan’s specific financial and economic status, it is not appropriate for Taiwan to set up a Sovereign Wealth Fund at this moment. Key words：Sovereign Wealth Funds、foreign exchange reserves

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Le développement rapide des fonds souverains ces dernières années est un des sujets marquants de l'évolution des marchés financiers. Pourtant, il existe encore peu de recherches scientifiques dans ce domaine, compte tenu du très faible niveau d'information sur ces fonds. L'objet de notre étude est d'une part d'essayer de mieux comprendre les stratégies d'investissement, les déterminants qui expliquent les décisions d'investissement et les performances des fonds souverains. D'autre part, nous analysons l'impact des fonds souverains sur les performances des entreprises dans lesquelles les fonds souverains ont investi, et aussi sur les marchés financiers. Nos résultats indiquent que les fonds souverains présentent généralement des rentabilités satisfaisantes. Pourtant, la crise financière et les difficultés de l'économie ont influencé fortement leurs performances. La performance des fonds souverains est influencée aussi par leurs stratégies d'investissement. Nous constatons que les déterminants de l'allocation d'investissement des fonds souverains changent selon les périodes et selon les fonds souverains. Les résultats de notre étude indiquent que l'impact de l'investissement des fonds souverains sur la performance des entreprises est positif. Ils mettent en avant que le niveau de transparence des fonds souverains influence les réactions positives du prix des actions aux annonces des investissements de ces fonds. Plus le niveau de transparence des fonds souverains est élevé, plus la réaction positive est forte. Notre étude permet de mieux comprendre la stratégie et le comportement d'investissement des fonds souverains. En évaluant l'impact des fonds souverains sur les marchés financiers et sur la performance des firmes dans lesquelles ils investissent, elle contribue à mieux comprendre les performances des fonds souverains et des entreprises qui attirent les investissements des fonds souverains. / The rapid growth of sovereign wealth funds in recent years is one of the prominent subjects of the financial markets evolution. Yet, there has been very little academic research in this domain, taking in account the very low level of information on these funds. The purpose of our study is to understand the investment strategies, the determinants that explain the investment decisions and the evolution of the SWFs performance. On the other hand, we try to shed some light at the impact of SWFs on the performance of companies in which they invested, and on the financial markets. Our results indicate that the SWFs' returns are generally satisfactory. However, the financial crisis and the difficulties of the economies have greatly influenced their performance. The performance of SWFs is also influenced by the investment strategies. We find that the determinants of investment allocation of SWFs change over the time and in accordance to SWFs. The results of our study show that the impact of SWF investments on the performance of the companies is positive. They also indicate that the level of transparency of SWFs influence the positive reaction of stock prices to the announcements of investments by these funds. The greater the level of transparency of SWFs, the positive reaction is stronger. Our study provides a better understanding of strategies and investment behaviors of SWFs. By evaluating the impact of SWFs on the financial markets and on the performance of firms in which they invest, it contributes to enhance current understanding on the performance of SWFs and of the companies that attract SWF investments.

Si les fonds souverains ne sont pas nouveaux, leur nombre et leur pouvoir financier n’ont cessé de croître depuis le début des années 2000, suscitant de nombreuses inquiétudes, notamment dans les pays développés. Les fonds souverains sont-ils guidés par les mêmes motivations que les investisseurs institutionnels ? Leur pouvoir financier risque-t-il de déstabiliser les marchés? Ces interrogations ont fait des fonds souverains un thème de recherche à part entière dans lequel s’inscrit ce travail de recherche. Le premier essai de cette thèse contribue à identifier les principaux facteurs susceptibles d’inciter un pays à créer un fonds souverain. En outre, les stratégies d’investissement des fonds souverains suscitent de nombreuses interrogations : poursuivent-ils un objectif de rendement financier ou ont-ils des objectifs plus stratégiques? Le deuxième essai met en évidence la complexité du processus de décision des fonds souverains en testant s’ils préfèrent investir dans des pays qui leurs sont familiers et/ou dans des pays dans lesquels ils ont déjà investi par le passé. Dans le prolongement de cette analyse, le troisième essai s’intéresse plus spécifiquement aux déterminants des prises de participations majoritaires des fonds souverains en se focalisant sur un groupe de fonds particulièrement actifs : les fonds des Pays du Golfe. Plus précisément, cette analyse vise à identifier les facteurs qui influencent la décision de prendre le contrôle dans une entreprise donnée. / If Sovereign Wealth Funds (SWFs) are not new, their number and their financial power have grown sharply since the beginning of the 2000's, which raise concerns, particularly among developed countries. Are SWFs' motives comparable to other institutional investors'? May SWFs investments destabilize financial markets? These concerns have encouraged researchers to investigate the issues raised by SWFs and it has now become a subject of research in its own rights. This thesis is in line with this literature. The first essay of this thesis identifies the main factors driving the decision to establish a fund. Moreover, investment decisions of SWFs are not well understood yet. Are SWFs investments driven by the search for financial profits or do they pursue more strategic objectives? The second essay highlights the complexity of the investment decision-making process of SWFs, testing if they rather invest in countries with which they share common characteristics and/or in countries where they have already invested. In line with this second essay, the third essay analyzes more specifically the determinants of majority acquisitions made by SWFs by focusing on some particularly active funds: Gulf Countries' SWFs. More precisely, this analysis aims at identifying both microeconomic and macroeconomic factors driving the decision to acquire a majority stake in a cross-border firm.

This thesis responds to the question 'how can sovereign wealth funds manage ambiguity in their decision-making so as to implement substantive long-term investment programmes?' The rapid growth of sovereign wealth funds (SWFs) over the past decade, due largely to booming commodity prices, has inspired optimism among many for their potential to contribute to the sustainability goals of society. SWFs are unconstrained by many of the factors that have kept pension funds from realising their potential as long-term investors and so they are well placed to make significant investments in sustainable projects with positive externalities such as infrastructure and to act as effective monitors of corporate behaviour. But many obstacles stand in the way. At the institutional level, transparency has replaced tight financial market regulation, resulting in entrenched short-termism. At the organisational level, many problems facing long-term investors are too complex to fit into traditional models of decision-making. Decentralisation is necessary to respond to this complexity but it conflicts with the coordination necessary to achieve economies of scale and scope. There may not even be an ideal outcome to coerce or incentivise agents to achieve. Taken together, these problems are understood in this thesis as ambiguity, which results from differences in interpretation and irreconcilable conflict. In contrast, most governance frameworks focus on problems of uncertainty and risk, due to missing information. This thesis has three aims. The first is to reframe the governance challenge for longterm investing in terms of managing ambiguity. Second, this thesis aims to reconcile ambiguity with legitimacy that depends on expert decision-making and provides one right answer to a clearly specified problem. Third, it provides specific examples of how ambiguity, if managed, can improve decision-making. That is, ambiguity forces us to engage with subjective reality but also provides us with a framework to do so. Ambiguity can act as a built-in adaptation mechanism to hold a coalition of diverse interests together in a rapidly changing environment, to identify synergies where others see only trade-offs and to overcome collective action problems. These constructive properties of ambiguity are explored in the four substantive chapters of this thesis, alongside specific recommendations for changes to SWF governance structures to transcend barriers to long-term investing. The first half of the thesis focuses on the earlier stages of the investment process and draws on specific examples of two SWFs. Chapter III investigates ambiguity in the Alberta Heritage Fund's inter-generational equity mandate. If managed in the form of self-reflexivity, ambiguity can contribute to overcoming the time inconsistency problem in the context of sub-national resource wealth funds. Chapter IV focuses on the irreconcilable conflict in the Norwegian Fund's ethical investment policy. It argues that agents use their discretion to interpret the policy and, in doing so, are able to align it more closely to the Fund's long-term investing mandate. The second half of the thesis extends consideration to long-term investors more broadly. Chapter V explores the delegation of shareholder engagement to portfolio managers to leverage synergies in an investment management firm. It finds that introducing ambiguity into incentive design can overcome the multi-task incentive problem. Chapter VI brings concepts explored in earlier chapters to bear on its analysis of a new market for public infrastructure assets. It argues that ambiguity provides the space necessary to bring diverse actors together to transcend collective action problems and create new institutional arrangements to support a more efficient market structure. Taken as a whole, this thesis is optimistic that, as those claiming to have the one right answer are increasingly proven wrong, ambiguity will earn its rightful place in the study and practice of finance.

This thesis considers how fiscal and monetary policy should be conducted in resourcerich economies. It consists of three papers addressing: whether governments should spend, save or invest volatile oil income; the assets they should save in; and how monetary policy should respond. The first, “Eight principles for managing resource wealth”, shows that capital-scarce countries should save relatively less against oil price volatility, and invest more in domestic capital. They also should prepare for volatility in advance, and treat savings as a source of income rather than a temporary buffer. To show this the paper develops a framework that nests a variety of existing results, which are presented in eight principles. The second, “The Elephant in the Ground: Oil extraction and asset allocation in sovereign wealth funds”, shows that governments should use sovereign wealth funds to offset oil price risk, extract oil faster if its price is pro-cyclical, and use precautionary savings to manage any residual volatility. To do this it combines three strands of literature for the first time: on continuous-time portfolio theory, oil extraction and precautionary savings. The third, “Optimal monetary responses to oil discoveries”, addresses the anticipation effects around an oil discovery. It shows that the terms of trade will need to appreciate twice: once when oil is discovered and consumers anticipate future revenues; and again when the government begins spending the revenues. Oil wealth will give the monetary authority an incentive to appreciate the terms of trade, in addition to stabilising domestic inflation and the output gap. Optimal policy is well-approximated by a standard monetary rule that also responds to expected changes in the natural level of output.

How can political science account for the decision of African states to strengthen their ties with China, often at the expense of other alliances and often in the face of economic risks? This thesis explores this question in the context of relations between Ethiopia and China, especially in the context of investments made by Chinese sovereign wealth funds in the Ethiopian economy. To begin to answer this question this thesis recasts the China-Africa debate to focus on African, i.e. Ethiopian, agency. The focus is on how Ethiopia's political leaders make foreign policy decisions and on the factors that shape their preferences. This focus reveals the influence of cognitive variables on their foreign policy decisions; the influence of their guiding ideology, 'revolutionary democracy,' is especially key. An analysis of Ethiopia's formal institutions demonstrates they are inadequate to explain the policy choices of Ethiopian leaders; they have been designed to reflect the concepts of revolutionary democracy. Using the language of prospect theory, a descriptive theory of decision-making under risk, this thesis contends that Ethiopian leaders select foreign policy options by weighing their possible outcomes as gains or losses relative to revolutionary democracy as their reference frame. Ethiopian leaders sanctioned China's finance of the Ethiopian Telecommunications Corporation despite the monopoly it gave to China and its impact on Ethiopia's debt. They formed a front company between Ethiopia and China's military industrial complexes despite its negative effects on economic development. They opened Ethiopia’s regions to Chinese capital although capital flows only to state-owned enterprises. Yet in each case, ideological objectives were advanced. This examination demonstrates how non-structural factors play a critical role in a bureaucratized state. Theoretical frameworks that account for these factors, like prospect theory, are therefore valuable to more robust understandings of Ethiopia, and Africa's, deepening relations with China.