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Study On Financial Asset Allocation Of China's Sovereign Wealth Fund

Posted on:2011-07-18Degree:MasterType:Thesis
Country:ChinaCandidate:X R HuangFull Text:PDF
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The so-called sovereign wealth, referring to a government through a specific tax and budget allocations, non-renewable natural resource revenues and the international balance of payments surplus accumulation, etc. formed by the government-controlled and dominated, usually in foreign currency held in the form of public wealth. In regard to what is a sovereign wealth fund, the international communities have been relatively vague definition. There is no widely accepted clear definition. Sovereign wealth funds referred to the articles is defined as the professional asset management organizations of sovereign wealth set up by the Government. In this way, a country's central bank or monetary authority, the traditional foreign exchange administration agencies as well as a large-scale state-owned enterprise foreign investment should not be part of the scope of sovereign wealth funds.Sovereign wealth funds and foreign exchange reserves have big difference. Foreign exchange management departments tend to take a conservative cautious approach, seeking maximum liquidity and maximum security, usually to invest in foreign bonds. The sovereign wealth funds typically seek higher investment returns, liquidity demand is lower, can take greater investment risks, the implementation of active management, asset allocation diversification.According to different sources of funds, sovereign wealth funds are divided into resource-based commodity funds and non-resource-based commodity funds. Reference to a standard provided by IMF in 2007, According to the motives for the establishment of policy objectives, sovereign wealth funds will be divided into Stabilization Funds, welfare funds, investment funds, national pension funds, and development funds. But many sovereign wealth funds combine multiple objectives, does not strictly belong to one of these sub-categories, and with the changes in the domestic macroeconomic and world economic environment, sovereign wealth funds will follow the establishment of dynamics change. For example, Russia's "stabilization fund" was founded in 2004, officially reorganized as "national welfare fund" on February 1,2008.In 2008 China's foreign exchange reserves grew by 1.94603 trillion U.S. dollars, more than seven major Western industrial countries foreign exchange reserves combined. These huge foreign exchange reserves mainly Composed by the high mobility, security, but relatively low earnings of foreign bonds. If only out of payment of foreign exchange to meet the purpose of import needs, ensure that the external debt solvency, maintaining currency stability, does not need so many foreign exchange reserves. And from an economic efficiency perspective, too much to hold low-yielding foreign exchange reserves, is also a financial waste of resources. Therefore, the surplus part of foreign exchange reserves gradually converted into sovereign wealth funds, through expert management to construct a more efficient portfolio, select a wider range of investment vehicles to invest in more diverse asset classes, invest in a wider range of countries and regions, are deployed in industries with higher returns in order to obtain a high risk-adjusted returns. Use foreign exchange reserves to set up sovereign wealth funds to increase investment in foreign exchange earnings is a common practice in some countries and regions。September 29,2007, China's Ministry of Finance through the issuance of special treasury bonds to raise 1.55 trillion yuan, purchased the equivalent of 200 billion U.S. dollars in foreign exchange reserves, and the fund is used to establish of China Investment Co., Ltd., as China's sovereign wealth fund, to assume the important task of increasing the value of foreign exchange reserves。More than 50% of funds invested in foreign, and the rest is used by Central Huijin companies to invest in domestic financial institutions. These two types of investment are completely independent of each other. The company's overseas assets in the investment portfolio does not ideal because the book proceeds being questioned. However, the company be challenged by its Unsatisfactory unrealized gain of its Overseas Portfolio.Practical experience shows that a reasonable asset allocation is to obtain an excellent long-term risk-adjusted return on investment basis. Based on this, this paper first reviewed the definition of sovereign wealth funds and Asset Allocation.This article from a practical point of view, take Government of Singapore Investment Corporation, Temasek, the Norwegian government pension fund global as an example, and make a detailed analysis of their management experience about asset class allocation, country and industry allocation, etc. To provide practical support to analysis of China's Sovereign wealth funds asset allocation. Later, In theory,authors propose China's sovereign wealth funds can be used Markowitz's mean-variance model to build the portfolio, use some ways to choose a specific stock and bond assets, and a number of factors that China's sovereign wealth funds in building the portfolio should be taken. This article further systematic analysis of China's sovereign wealth fund from overseas financial assets portfolio, approximate Configuration Strategy of assets in stocks and bondsLast but not least, drawing on the experience of other countries, this essay gave suggestions on the improvements of China Investment Corporation's strategic asset allocation in order to increase the return of its overseas investments.
Keywords/Search Tags:Sovereign Wealth Funds, Financial Assets, Asset Allocation
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