The Research On The Transparency Of Sovereign Wealth Funds

Sovereign wealth funds (SWFs) have recently been recognized as well--established institutional investors and important participants in the international monetary and financial system. This was highlighted by the International Monetary and Financial Committee (IMFC) when, in October 2007, it expressed the need for further analysis of key issues for investors and recipients of SWFs flows, including a dialogue on identifying best practices. But as the number of the fund and their asset size develop vigorously, its international influence on political and economic become bigger and bigger. The outside world began to worry about its low transparency on investment behavior, the financial protection will follow, which made the international investment environment worsening for Sovereign wealth funds, especial for China Investment Corporation (CIC), which is Chinese SWFs. From the date of the establishment, CIC faced more challenges than other SWFs, which has less transparency. The main reason is that its asset size is very large and its transparency is not high, but the most important reason is the differences in ideology between China and the western countries, which see CIC as a threat. So CIC has to increase its transparency, and there is realistic meaning to research the SWFs'transparency.What is the SWFs'transparency? Why is the transparency so important for SWFs? How to measure the transparency of the SWFs? How to improve the SWFs'transparency? Just because of these problems, I write my thesis.This thesis is totally divided into four chapters:The first chapter mainly introduces the knowledge of sovereign wealth funds. This section focuses on SWFs'causes, its motivation and its influence to prepare for discussing the SWFs'transparency which is this thesis's purpose.The second chapter systematically expounded SWFs'Transparency-related issues, including definition, origin, status, international exploration and practice. Then I focus on the SWFs'present situation and the tendency. At present, the transparency of SWFs has the following characteristics:First, more developed of the economics of SWFs'home countries, more transparent of the SWFs. For example, in the 14 most transparent SWFs,11 belong to developed country, and 24 lest transparent SWFs all belong to developing country. Second, the asset size of the most transparent SWFs'are not large, and the transparency of the largest SWFs in the total assets are not high. For example, the total assets size of the 10 largest SWFs account for 78.83% of the total 52 SWFs, and only two SWFs' transparency are high. And the total asset size of the 14 most transparent SWFs account for 23.84%. Now, improve SWFs'transparency have become a trend for future development, for example, in the 1st quarter of 2008, there are only 9 SWFs'transparency are highest, and.there are 20 SWFs'transparency are lowest; But in 2st quarter of 2009, the highest number increase to 14, and the lowest number decrease to 16.The third chapter introduced three methods to measure the transparency of SWFs, including Santiago Principles, Linaburg-Maduell Transparency Index (LMTI) and Edwin M. Truman's Scoreboard for Sovereign Wealth Funds. Then comparing with the advantages and disadvantages of these three methods. The Truman's Scoreboard is the most detailed; LMTI is most convenient and its data updates soon.Chapter four mainly analyze CIC's transparency using the three methods introduced in chapter three. Although the focuses of the three scoring methods are different, their conclusion are same that they all show that CIC's transparency is not high, up to be counted as middle level. There are a number of inadequacies for CIC's transparency, for example, the quantity and quality of disclosed information'are inadequate, even some of them are unreal. On this basis, this paper presents some recommendations:CIC improves its transparency should be gradual and the process should be divided into at least two phases. The first phases, CIC should disclose the most basic information, such as independently audited annual reports, cash flow statement, risk management framework and guidelines in reference to ethical standards, also CIC should ensure the authenticity of the disclosed information. The second phases, CIC should further improve the quality of information, for example, gradually increase the amount of information the financial statements and start to disclose the quarterly report.