| In recent years, the development of sovereign wealth funds (SWFs) has entered anew phase; it becomes larger, no matter in the scale, the scope of the investment or theinfluence of SWFs. But its inherent nature of sovereignty and Black-box operationshas also brought some uncertainty to the stability of international financial markets,and the attitude differences between countries; It also causes the protectionistsentiment in some countries, especially after the US. Sub-prime Mortgage Crisis, itpays more attention to the administration of the stability of international financialmarkets all over the world, to the investment management of the national wealth, andto seek a more equitable regulatory system of SWFs. China has established its ownSWFs two years ago, but due to the shortage of experience and talented person,together with the recession in the market, it did not show an obvious investment result,and there are still many deficiencies on their management, while the foreign SWFshas already passed a long way for almost half a century, which can bring us advancedinvestment management experience. I analysis the operation and regulatory of SWFs,in order to, provide some referable suggestion for the development of Chinese SWFs,in this article.This article is divided into four parts. In the first part, I introduce the conceptionand the theory of sovereign wealth funds, which helps to have an accurateunderstanding of SWFs. About the theories, it gives the past research results on theSWFs, which include the theories on the emergence and the impact, the operation, andthe supervision of the SWFs, which gives an overall understanding of SWFs on thetheory. About the fundamental nature of SWFs, it analyses the concept, thecharacteristics, the classification of the SWFs, and the impact on the SWFs,comprehensively. And the classification of the SWFs is also the summary of thesources of funding and the investment objectives. About the evolution of the SWFs, itanalysis the emergence, the stage of development, the current situation, and the newenvironment the SWFs faces, which shows the SWFs is a result of the development ofexcess reserves with the depreciation of the dollar, which accumulated from the risingof the oil prices and the imbalance of international payments; it explains the threestages of the development since the SWFs came into being, using the graphics; it alsoreference the data from IMF, which shows the current situation of the most important18 SWFs. Recently, the outbreak of financial crisis brings the opportunities to theSWFs, which allows more M & Aactivities, it also brings challenges, as well, such as,vigilance in some countries and obstacles to the investment.Part two analyses the operation of Sovereign Wealth Funds, elaborates the way tooperate SWFs effectively, from two aspects: the corporate governance and the investment strategy. In corporate governance, according to the difference of theorganization and management of the institution, it can be divided into three types,managing by the government departments, by an independent investmentmanagement, or by the government-owned investment company (a semi-independentmanagement), and the difference of the three types mainly focus on the power ofinvestment and obstruction it may face. I take the independent legal system of AbuDhabi Investment Authority (ADIA), and the Hong Kong Equity Portfolio Fund,which is managed by the government, for example, to explain the advantages anddisadvantages that they have, and make a choice of corporate governance shoulddepend on their national needs. In the investment strategy, the investment of SWFs isdepend on the Portfolio Theory found by Markowitz, and we should scatter risksthrough diversification of investments, determine a reasonable investment strategyshould not only rely on their financial situation, but also their risk appetite, or otherfactors. An integrated investment strategy can be divided into several parts, such asinvestment position, analysis and the establishment of the investment portfolio,portfolio adjustments, and performance evaluation of the portfolio. I comparativelyanalysis the investment strategyof the two SWFs appeared in Russia, the StabilizationFund, and National Welfare Fund, the one built after its split, which may have somereference to our SWFs on investment strategy.Part three analyses the supervision of the SWFs, starts from the market risk, policyrisk, operational risk and social risk, which comes after the SWFs, researches theregulatory attitude of the parties, at present, and makes a number of regulatoryprinciples and recommendations, combined with the situation of the internationalmarket. Because the great magnitude of SWFs may lead to herding, the opacity ofSWFs may lead to financial protection, the leveraged operation may lead to thepossibility of sovereign default, and other social costs, so regulating the investmentbehavior of the SWFs is in need. Nowadays, most fund holders support the view offree competition; believe that the passive investment tactics will not have negativeimpacts on the world economy; while the developed countries hold a cautious attitudeto it, and promote regulatory. The existing monitoring system includes the nationalmonitoring, the multilateral agreements, the regional monitoring, and the supervisionof international organizations. The newest regulatory is an intentional agreement ofregulation reached by The United States, Singapore and the United Arab Emirates inMarch 2008, and a"24 principles"made bythe IMF. According to the above literatureand reference the research from many other scholars, I come up with the appropriatesupervision principle and the equality supervision principle; and makerecommendations, such as, combine general supervision with strict supervision,coordinate the regional monitoring and unified supervision, at the same time,strengthen the capacity of governments and international organizations, andencourage the fund holders to participate in making the rule.Part four introduces the development situations and problems of SovereigntyWealth Fund in China, and then gives some feasible advices. The SWF of China ismanaged by China Investment Corporation, whose registered capital is 200 billion.China Investment Corporation is founded in such a way that Ministry of Finance distributed the special national debt and raise fund to purchase foreign exchangereserve, its target is maximizing the shareholders'benefit, but in fact, its target isfuzzy and has lots of problems in the mechanism, such as its registered capital is debt,instead of their own capital based on traditional corporation mechanism, it hastwofold tasks which include the strategic investment and the financial investment, andso on. Because of those reasons, China Investment Corporation faces big operationrisk, the system risk and the exchange risk, so, its investment abilityneeds to improve.According to the above, this article proposed some measures, such as establisheseffective investment strategy, talent people strategy, strengthen supervision and riskcontrol, establish reasonable achievements appraisal system. It is true that China'sSovereignty Wealth Fund is at its initial stage at present, which needs to improve itsshortcomings, also faces a more complex economic environment, still has moreproblems which need to discover and solution.Sovereignty Wealth Fund just enters the rapid development in the recent severalyears, the research and attention on it also starts in recent years. Because SovereigntyWealth Fund is not transparent, lots of countries do not announce the investmentportfolio and the financial report of their Sovereignty Wealth Funds, this broughtgreat inconvenience to the research, which is the reason why a lot of developed feelanxious. But with international criterions are established step by step, together withefforts of every country, Sovereignty Wealth Fund will become a steady strength ininternational finance market, and will make greater impact on the internationalfinance pattern. Also, the research on Sovereignty Wealth Fund will move forwardand thoroughly. |
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