Optimal investment strategies for Sovereign Wealth Funds

Sovereign Wealth Funds Alexandre Kateb Presentation at the EDHEC Risk and Asset Management Center Nice, 7 May 2009

Outline ,[object Object],[object Object],[object Object],[object Object]

Context ,[object Object],[object Object],[object Object],[object Object],[object Object]

SWFs : key facts and figures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SWFs : key facts and figures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SWFs : key facts and figures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

SWFs : key facts and figures ,[object Object],[object Object],[object Object],[object Object],Source : Aizenman (2008)

SWFs : key facts and figures ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],Source : Setser (2009)

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],[object Object],[object Object],Source : Norway’s Government Pension Fund – Global, 2008 Annual Report

Investment strategy for SWFs: some general considerations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: some general considerations ,[object Object],Type of fund Implicit liabilities Optimality criteria Stabilization funds Non-commodity structural deficit Fiscal sustainability and macro stability Long term savings funds (future generations funds) Replacement cost of an exhaustible resource Intergenerational equity, Economic diversification Reserve investment corporations Sterili zation costs (through domestic bonds) Return in excess of the sterilization liabilities Contingent pension reserve funds Contingent unspecified pension liabilities Intertemporal funding ratio

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],Source : Da Costa (2006)

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object],[object Object]

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object],[object Object],(financing equation)

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object],with

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],If the long-term average of these two rates (financial return, GDP growth) were about the same, the non-oil structural operating budget has to be balanced on average to keep the financial assets ratio constant at a policy-determined level.

Investment strategy for SWFs: the case of a stabilization fund ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Selective bibliography ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Appendix 1 : most important SWFs by AUM Source: IFSL (2009)

Appendix 2 : difference between SWFs and other investment vehicles Source : SWF Institute

Appendix 3 : a scoreboard for assessing SWFs management practices Source : Truman (2008)

Optimal investment strategies for Sovereign Wealth Funds

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