Sovereign Wealth Funds and Long-Term Development Finance : Risks and Opportunities

Sovereign wealth funds represent a large and growing pool of savings. An increasing number of these funds are owned by natural resource exporting countries and have a variety of objectives, including intergenerational equity and macroeconomic stabilization. Traditionally, these funds have invested in external assets, especially securities traded in major markets. But the persistent infrastructure financing gap in developing countries has motivated some governments to encourage their sovereign wealth funds to invest domestically. This paper proposes some basic elements of a conceptual framework to create a system of checks and balances to help ensure that the sovereign wealth funds do not undermine macroeconomic management or become a vehicle for politically driven "investments." First, the risks and opportunities of domestic investment by sovereign wealth funds are analyzed. Central issues are the relationship of sovereign wealth fund financing to the budget process and to the procurement systems of sector ministries, as well as the establishment of appropriate benchmarks and safeguards to ensure the integrity of investment decisions. The paper argues that a well-governed sovereign wealth fund, with a sound mandate and professional management and staffing, can possibly improve the quality of the public investment program. But its mandate should not duplicate that of other government institutions with investment mandates, such as the budget, the national development bank, the investment authority, and state-owned enterprises. Establishing rules on the type of investment (for example, commercial and/or quasi-commercial) and its modalities (for example, no controlling stakes, leveraging private investment) is one way to ensure separation between the activities of the sovereign wealth fund and those of other institutions. The critical issue remains that of limiting the sovereign wealth fund's investment scope to that appropriate for a wealth fund. If investments that generate quasi-market returns are permitted, the size of the home bias should be clearly stipulated and these investments should be reported separately.

Bibliographic Details

Main Authors:	Gelb, Alan, Tordo, Silvana, Halland, Havard, Arfaa, Noora, Smith, Gregory
Language:	English en_US
Published:	World Bank, Washington, DC 2014-02
Subjects:	ACCOUNTING, AFFILIATED ORGANIZATIONS, ALTERNATIVE ASSET, ALTERNATIVE INVESTMENT, ASSET CLASS, ASSET CLASSES, ASSET MANAGEMENT, ASSET MANAGERS, AUDIT COMMITTEE, AUDIT COMMITTEES, BANK POLICY, BONDS, BORROWING COSTS, BUDGETING, CAPACITY CONSTRAINTS, CAPITAL INVESTMENTS, CAPITAL MARKET, CAPITAL MARKETS, CAPITAL STOCK, CAPITAL STOCKS, CENTRAL BANK, CHECKS, COMMERCIAL BASIS, COMMERCIAL INVESTMENT, COMMERCIAL INVESTMENTS, COMMERCIAL LOANS, COMMERCIAL TERMS, COMPANY LAW, CONFLICT OF INTERESTS, CONFLICTS OF INTEREST, CONTINGENT LIABILITIES, CORPORATE GOVERNANCE, CREDIBILITY, DEBT MANAGEMENT, DEBTS, DEGREE OF RISK, DERIVATIVES, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DEVELOPMENT FINANCE, DEVELOPMENT FINANCING, DIRECT INVESTMENT, DIRECT INVESTMENTS, DISBURSEMENTS, DIVESTMENT, DOMESTIC CAPITAL, DOMESTIC INVESTMENT, DOMESTIC MARKET, DOMESTIC STOCK EXCHANGE, DUE DILIGENCE, ECONOMIC DEVELOPMENT, EFFICIENT PORTFOLIOS, EMERGING MARKETS, EQUITIES, EQUITY INVESTMENTS, EQUITY MARKET, EXCHANGE RATE, EXPECTED RETURNS, EXPENDITURE, EXPENDITURES, EXPORTERS, EXTERNAL ASSETS, FINANCIAL ASSETS, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENTS, FINANCIAL MANAGEMENT, FINANCIAL MARKET, FINANCIAL PERFORMANCE, FINANCIAL STATEMENTS, FINANCIAL SUPPORT, FINANCIAL SUSTAINABILITY, FISCAL DEFICIT, FISCAL POLICY, FIXED INCOME, FIXED INCOME PORTFOLIO, FLOW OF INVESTMENT, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVE, FOREIGN INVESTORS, FOREIGN NATIONALS, FRAUD, GOVERNANCE ISSUES, GOVERNMENT OWNERSHIP, HEDGE FUNDS, HOLDING, HOLDINGS, HOST COUNTRY, ILLIQUIDITY, INCOME FLOW, INFLATION, INFRASTRUCTURE FINANCING, INFRASTRUCTURE INVESTMENT, INFRASTRUCTURE INVESTMENTS, INSTITUTIONAL INVESTORS, INTERNAL AUDIT, INTERNATIONAL BANK, INTERNATIONAL FINANCE, INTERNATIONAL INVESTMENT, INTERNATIONAL INVESTORS, INTERNATIONAL PORTFOLIOS, INTERNATIONAL STANDARDS, INVESTABLE FUNDS, INVESTING, INVESTMENT ACTIVITIES, INVESTMENT BANKS, INVESTMENT CAPITAL, INVESTMENT CORPORATION, INVESTMENT CRITERIA, INVESTMENT DECISION, INVESTMENT DECISIONS, INVESTMENT FLOWS, INVESTMENT FUNCTION, INVESTMENT FUND, INVESTMENT FUNDING, INVESTMENT HORIZON, INVESTMENT HORIZONS, INVESTMENT INSTITUTIONS, INVESTMENT MANAGEMENT, INVESTMENT NEEDS, INVESTMENT OPPORTUNITIES, INVESTMENT POLICIES, INVESTMENT POLICY, INVESTMENT PORTFOLIO, INVESTMENT PROCEDURES, INVESTMENT PROCESS, INVESTMENT PROGRAMS, INVESTMENT PROJECTS, INVESTMENT RETURN, INVESTMENT RETURNS, INVESTMENT SERVICES, INVESTMENT SPENDING, INVESTMENT STRATEGIES, INVESTMENT VEHICLE, JOINT STOCK COMPANY, LENDERS, LIABILITY, LIQUIDITY, LOCAL ECONOMY, LONG TERM INVESTMENT, LONG-TERM INVESTMENT, LONG-TERM LIABILITIES, LOW RISK INVESTMENTS, MACROECONOMIC FLUCTUATIONS, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICY, MACROECONOMIC STABILIZATION, MARKET CONDITIONS, MARKET DISCIPLINE, MARKET PRICE, MARKET REGULATOR, MARKET RETURN, MARKET RETURNS, MINORITY SHAREHOLDERS, MULTIPLIER EFFECT, OIL PRICES, OPERATIONAL INDEPENDENCE, PENSION, PENSION FUND, PENSION FUNDS, PENSIONS, POLITICAL ECONOMY, POLITICAL RISK, PORTFOLIO, PORTFOLIO MANAGEMENT, PORTFOLIOS, PRICE MOVEMENTS, PRIVATE CAPITAL, PRIVATE CREDIT, PRIVATE EQUITY, PRIVATE INVESTMENT, PRIVATE INVESTORS, PRIVATE PARTIES, PRIVATE RETURNS, PRODUCTIVE INVESTMENT, PROFITABILITY, PUBLIC DEBT, PUBLIC DISCLOSURE, PUBLIC FINANCE, PUBLIC FUNDS, PUBLIC INVESTMENT, PUBLIC INVESTMENT PROGRAM, PUBLIC INVESTMENT PROGRAMS, PUBLIC INVESTMENTS, PUBLIC SPENDING, RATE OF RETURN, REAL EXCHANGE RATE, REAL PROPERTY, REGULATORY FRAMEWORKS, RESERVE, RESERVE FUND, RESERVES, RETURN, RETURN ON INVESTMENT, RISK ADJUSTED RATE, RISK DIVERSIFICATION, RISK MANAGEMENT, SECURITIES, SHAREHOLDER, STANDARD ASSET, STATE BANK, STATE OWNED ENTERPRISES, TRADE UNION, TRADING, TRANSACTION, TRANSPARENCY, TREASURY, TRUSTEE, TRUSTEES, VALUATION,
Online Access:	http://documents.worldbank.org/curated/en/2014/02/18930592/sovereign-wealth-funds-long-term-development-finance-risks-opportunities https://hdl.handle.net/10986/17313
Tags:	Add Tag No Tags, Be the first to tag this record!