1. Sovereign Wealth Fund and Foreign Exchange Management By Group 2 IFT – Section D Deepika Dipika Dibyakant Gaurav Kirti Mihir
2. SWF - Definition An investment fund managed by a government or another organization on behalf of a nation or sovereign state. It is composed of Global Financial Assets: Stocks Bonds Property Precious metals
3. Purpose of SWF Sovereign wealth funds can be characterized as maximizing long term return, vis-à-vis the foreign exchange reserves serving liquidity management. To hold, manage, or administer assets to achieve financial objectives Reduce the volatility of government revenues Counter the business cycles' adverse effects on the national economy To build up savings for future generations Assist monetary authorities dissipate unwanted liquidity
9. Facts & Figures 53 SWFs, Estimated at $3.8 Trillion International Working Group of SWFs Funding by Source Oil & Gas-61% Others-39% Funding by Region Middle East-44% Asia-35%
11. Linaburg-Maduell transparency Index Wealth Fund Institute by Carl Linaburg and Michael Maduell. Method of Rating Transparency Based on 10 Essential Principals 2nd Quarter 2009 LMTI ratings SOURCE- WWW.SWFINSTITUTE.ORG
14. SWF - Strategy No single well defined strategy. Objective specific Focus on emerging markets and diversification Equity investments: Portfolio, Index and Mixed approach Example: ADIA, Temasekand CIC
15. Impact on global Financial stability POSITIVE – Reduce volatility and Support function. NEGATIVE – Currency movement and announcement effect. Role similar to those of Hedge funds and Financial Institutions.
16. Myths About SWF Sovereign wealth funds are all the same in their opacity Sovereign wealth funds are a net benefit to the international financial system Sovereign wealth funds are not like hedge funds
21. Comfort zone provision for Market participantsP- Notes Issue October 2007 to August 2008 Huge reserves gone drastically down during Financial crisis. Indian FOREX reserve investment in US treasuries which is lowest in the world.
22. What to do with these reserves in future? Keep some amount of reserves for Imports - 3 to 6 months , some for Contingency For rest reserves the Options are: Accumulate reserves SWF of INDIA Equities & Fixed income securities Energy Security for future growth IMF & World Bank Investment in Own country Infrastructure
23. Indian SWF imagination or Reality…… RBI with another independent entity to manage Initial $ 5 Billion corpus Can reduce burden of Oil & Gas subsidies like Administered price mechanism. State bank of India in talks with major SWF’s of the world.
