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A Simulation Analysis On China Sovereign Wealth Fund's Optimized Portfolio

Posted on:2012-03-04Degree:MasterType:Thesis
Country:ChinaCandidate:X J ChaiFull Text:PDF
GTID:2189330335465010Subject:Finance
Abstract/Summary:PDF Full Text Request
Sovereign wealth funds (SWFs) mainly refers to a professional asset management organization which is set up by the government to manage the sovereign wealth, while sovereign wealth refers to the public wealth owned and controlled by the government in the form of foreign assets. Sovereign wealth is mainly accumulated from a specific tax and budget allocation, renewable natural resource revenues and the international balance of payments surplus, etc.SWFs must be owned by the government and mainly come from foreign exchange reserves, a surplus of natural resources, export earnings and the international assistance funds. SWFs has a long history, the first one of which is born in 1953, however, it is not until the year of 2007 when the financial crisis started that every one pays attention to SWFs. At that time, SWFs acted as if they were the most shining star, because they provided a large amount of funds to the financial organizations which were caught by the sub-prime crisis. However, as the crisis became more severe as the time went by, those SWFs suffered a great loss themselves. From then on, the importance of SWFs risk management drew the attention of academic and investment community.China Investment Corporation (CIC) was established in 2007, which was the first SWF in China. CIC shows Chinese government's commitment to manage its foreign exchange reserves in a more active way. Since its establishment, CIC has received a lot of criticism because of its poor investment skills, especially its investment on Black Stone and Morgan Stanley, which has resulted in a great loss. Therefore, CIC has adjusted its investment strategy and it has involved in direct investment and real estate investment recently.Under this circumstance, it is of great significance to study on how to minimize the investment risk of CIC. Traditional portfolio theory holds that "we can not put all the eggs into a single basket", so risk reduction can only be achieved via diversification. Based on this theory, the author wrote this paper in the hope that an optimized portfolio can be found for CIC with the help of the risk management software.The BarraOne software shows that CIC should put most of its funds to American bonds and stocks. Besides, it can put the remaining funds to foreign real estate market. Based on this inclusion, the author gives some suggestions to CIC on its risk management:re-balancing of the portfolio, restriction on tracking error and adjustments on investment proportion to a single company.
Keywords/Search Tags:sovereign wealth funds, optimization, risk management
PDF Full Text Request
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