[OPE-L] New players for taxpayer's funds: the SWF's

From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sun Sep 09 2007 - 16:04:48 EDT

Until recently, nationally-owned assets have been managed conservatively by central banks, ministries of finance and, less frequently, by government investment offices. There are signs that this is now changing.

First, the huge increase in official global external reserves means that many central banks and governments now control assets vastly larger than are needed for intervention purposes. This is forcing a rethink of the rationale for reserve management with a greater focus on return.

Second, privatisation, soaring commodity prices and new exploration have vastly increased revenues from the sale of national assets. More countries are interested in placing these revenues into a portfolio of financial assets to generate a permanent source of foreign currency income, ensure inter-generational equity and to defray future pension liabilities.

Third, the build-up in foreign currency reserves and access to international markets has allowed countries more flexibility in managing both sides of the national balance sheet to better control market risks, liquidity and borrowing costs.

Sovereign Wealth Management is the first book-length volume of its kind to explore these developments and consider best-practice on how to establish funds to handle competing demands for spending, saving and investment. The global total under management is already estimated at over $2 trillion and set to grow. This is in addition to the $5 trillion managed by the central bankers. This groundbreaking book presents a variety of views as to how such assets should be invested.

(attachment: a list of some Sovereign Wealth Funds from The Economist)

Dani Rodrik comments:

So what is the big deal? Apparently, it is OK for developing countries to transfer huge amounts to the U.S. and other advanced countries by holding low-return paper, but not OK for them to want to make some money in the deal. http://rodrik.typepad.com/dani_rodriks_weblog/2007/08/misplaced-conce.html

I guess the "big deal" is, if governments use publicly-owned financial assets to invest abroad for profit, rather than invest in the local economy of the taxpayers who elected them.


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