Sovereign Wealth Funds in East Asia
The massive size, rapid growth, and high-profile investments of Sovereign Wealth Funds (SWFs) in the U.S. and elsewhere in 2007 has attracted the attention of the media, politicians, regulators, and academics over the past year. Some of the SWF investments have been viewed as market stabilizing, for instance the substantial equity investments in large U.S. financial institutions that were recently in financial trouble after the sub-prime mortgage crisis. However, there is great suspicion from many political and academic quarters that SWFs are politically motivated with many SWFs in Asia now at the center of the storm. Although SWFs have been in existence for many decades worldwide, most SWFs in the East Asia and Pacific Region (EAP) are relatively new. The emergence of the SWFs in Asia is largely a by-product of the strong economic development at East Asian countries and the attendant accumulation of foreign exchange reserves, however, there are other types of SWFs in the region. The Governments have taken a concerted strategy to enhance the returns on these excess reserves. The EAP region is an ideal region to take a look at the issues surrounding SWFs since Asia has the full range of funds from long-established funds to brand new funds; from passive portfolio investors to more aggressive strategic investors; from resource-backed funds to foreign reserve-backed funds; and, based in the largest, most highly developed economies to the smallest, poorest economies in Asia. Therefore, the objective of this report is to document the status of Sovereign Wealth Funds in the East Asia Region and to understand the implications of their rapid growth. Many developing countries have recently shifted a higher proportion of their foreign currency earnings from official foreign currency reserves to sovereign wealth funds. Sovereign wealth funds have an estimated $600 billion in assets under management in developing countries, dominated by China ($200 billion held by the Chinese Investment Corporation and $68 billion held by the Central Huijin Investment Company) and Russia ($130 billion held in the Reserve Fund and $33 billion held by the Fund of Future Generations). It should be noted that this amount is small relative to the total level of reserves held by developing countries (estimated at $3.7 trillion at end 2007).
| Summary: | The massive size, rapid growth, and
high-profile investments of Sovereign Wealth Funds (SWFs) in
the U.S. and elsewhere in 2007 has attracted the attention
of the media, politicians, regulators, and academics over
the past year. Some of the SWF investments have been viewed
as market stabilizing, for instance the substantial equity
investments in large U.S. financial institutions that were
recently in financial trouble after the sub-prime mortgage
crisis. However, there is great suspicion from many
political and academic quarters that SWFs are politically
motivated with many SWFs in Asia now at the center of the
storm. Although SWFs have been in existence for many decades
worldwide, most SWFs in the East Asia and Pacific Region
(EAP) are relatively new. The emergence of the SWFs in Asia
is largely a by-product of the strong economic development
at East Asian countries and the attendant accumulation of
foreign exchange reserves, however, there are other types of
SWFs in the region. The Governments have taken a concerted
strategy to enhance the returns on these excess reserves.
The EAP region is an ideal region to take a look at the
issues surrounding SWFs since Asia has the full range of
funds from long-established funds to brand new funds; from
passive portfolio investors to more aggressive strategic
investors; from resource-backed funds to foreign
reserve-backed funds; and, based in the largest, most highly
developed economies to the smallest, poorest economies in
Asia. Therefore, the objective of this report is to document
the status of Sovereign Wealth Funds in the East Asia Region
and to understand the implications of their rapid growth.
Many developing countries have recently shifted a higher
proportion of their foreign currency earnings from official
foreign currency reserves to sovereign wealth funds.
Sovereign wealth funds have an estimated $600 billion in
assets under management in developing countries, dominated
by China ($200 billion held by the Chinese Investment
Corporation and $68 billion held by the Central Huijin
Investment Company) and Russia ($130 billion held in the
Reserve Fund and $33 billion held by the Fund of Future
Generations). It should be noted that this amount is small
relative to the total level of reserves held by developing
countries (estimated at $3.7 trillion at end 2007). |
|---|