Research On Risk Management Of China Sovereign Wealth Fund

Corresponded with private wealth, sovereign wealth funds (SWFs) mainly refers to a separate pools of government-owned or government-controlled financial assets that include some international assets, which accumulated from a specific tax and budget allocation, renewable natural resource revenues and the international balance of payments surplus, etc. SWFs mainly come from foreign exchange reserves, a surplus of natural resources, export earnings and the International Assistance Fund etc. SWFs often managed directly by Central Banks, which set up some specific investment organazations. From 19th century end, most developing countries and some developed countries started to pay attention to SWFs, trying to spur economic growth by adjusting and intervening in the trade balance, or inter-generational smoothing of national wealth or support national development strategy through sufficient or excess national reserves.As an influential new institutional investors in the international financial market, SWFs especially China SWF attracted the attention of global financial market, but the researches on SWFs are mainly stayed in SWFs'descriptive analysis, such as concept, type and size etc. When SWFs has become increasingly active, the paper hopes to supplement and reinforce risk management of China SWF in theory, make effective risk management stragegy, so as to improve China SWF by some useful theoretical guidance and ideas.Based on the theoretical study of risk management, the paper takes China SWF as the research object. It combines with Copula, fuzzy analytic hierarchy process, and econometric analysis methods, compared and used some successful foreign SWFs risk management approaches for reference, focuced on analysis of China SWF's risk identification, measurement, and risk assement. The paper uses application analysis on the risk assement. At last, the paper puts forward suggestions on risk management of China SWF.Main results of this paper are as follows:(1)This paper systemically and fully summarizes the formation and development process of SWF, its definition, its relationship with the official foreign exchange reserves, as well as its motivation and type. The paper systematicly and comprehensively summed up the research results on risk and risk management, and SWFs. From a theoretical point, the paper analyzed the risk management of SWFs.(2)This paper analyzes the management system of Sinapore, Russia amd Noway's SWFs, especially their risk management, summed up their successful experience. It compared with risk management of China SWF, described the establishment, development, entire organizational structure, investment categories of China SWF, particularly its risk management problems. Summarized comprehensively all factors of risk management of China SWF, the paper points out three deficiencies:one is macro-environment, and second is organizational structure, three is risk control.(3) This paper systematically and completely carries out relevant research of risk identification of China SWF, which includes the identifcaion of content, basic principles, basic methods and the process. It points out risks and its categories of China SWF. Combined with the risk characteristics of China SWF, it puts forward risk measurement methods of China SWF. The paper analyzes and derives some major risk, such as market risk, credit risk, operational risk, etc., which provides a theoretical basis for the establishment of risk assessment model.(4) According to China SWF characteristics, such as it lacks of prior information on the real situation, and prospective and strategic on investment motives, the paper uses a fuzzy evaluation method to establish a risk assessment model, so as to pre-and post collection of information processing, and have a comprehensive risk assessment capabilities, and strive to objectively comprehensive scientific assessment of the risks of China SWF. This result can analyze the reliability of this evaluation which specifically reflects the risk level for the evaluation of the distribution of grades of membership by the gap of B five elements:the difference of the maximum value with other value, the risk attached to the greater degree of reliability, and vice versa. Finally, the paper applied this assessment model to risk assessment analysis of investment. (5) As China SWF has great importance to China, as well as to the global economy, it should be focused on by government and financial institutions, both attach great importance to close cooperation. They guard against market risks from the occurrence and mitigate the consequences of two ways to start with, in order to promote the healthy development of China SWF, maintain stable operation of China and the global economy. This paper establishes China SWF risk early warning system through quantitative indicators and comprehensive evaluation and analysis to monitor the possible risk characteristics and trends. At the same time, the paper explores the risk of dispersion measurement of China SWF through the CIC's portfolio, strategic investment strategy, internal and external control. Finally makes some policy recommendations for the management of CIC.