Essays on Types and Characteristics of Sovereign Wealth Funds Coursework

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The paper "Types and Characteristics of Sovereign Wealth Funds " is a great example of management coursework.   Sovereign Wealth Funds are owned by the state and consist of a pool of resources derived from countries budget surpluses, the proceeds of trade and government reserves set aside for purposes of investments so as to improve the economy of the country. The fund is financed by the central government through the central bank reserves that accumulate from budget and trade surpluses and the proceeds of trading in natural resources of the particular country. These wealth funds are managed directly or indirectly by the central government of the country for the purpose of meeting the objectives of national interest set by the government. The general objective of setting up these funds is to diversify wealth of a country through investment in different wealth-generating projects and improve the returns of foreign exchange reserves and shield the economy from fluctuations of prices of commodities.

Other objectives of the sovereign wealth funds are to provide for pension in the future, to provide for future generations when natural resource reserves have been depleted, to promote strategic industrialization so as to unlock the economic potential of the country and to help in promoting political agenda of the country.

For example, Russia has developed large pools of sovereign wealth funds and has used it to promote industrialization in the region together with driving a strategic political agenda in the region. These funds have been mixed views from economists with concerns being raised about financial stability, corporate governance and political interference and protectionism. This paper focuses on the benefits and the need to develop Sovereign wealth funds by a growing economy like Australia and any drawbacks of the funds thereof in helping the country to achieve its economic goals. Types of Sovereign Wealth Funds Sovereign wealth funds take different forms depending on the objective they are formed to achieve. Stabilization Funds These are state-owned funds which are mainly established to insulate the economy from influxes of revenue for economies which rely on a particular industry such as the oil and gas industry. Savings Fund These are funds which are established to save for future generations during times of budget surplus. These funds are aimed at distributing nonrenewable resources across generations by transforming the resources into diversified financial assets.

Abu Dhabi Investment Authority Pension Reserve Funds These funds are established by governments to support the social welfare of the county together with servicing of pension. Reserve Investment Funds These are established to reduce the risks involved in holding excess funds by a government. This is achieved by allocating high investments in equities to generate higher returns. Strategic Development Sovereign Wealth Fund These are sovereign wealth funds that are established to promote national economic development goals and allocate funds to socio development projects Characteristics of Sovereign Wealth Funds Investment Period Sovereign Wealth Funds are invested for a pre-determined period of time.

Stabilization funds are a meant to caution against the uncertainty associated with government income, spending and the economy. These funds are meant to be accessible as and when the need arises and therefore invested for a short term. Savings funds, on the other hand, are intended to cover the funding needs required by future generations and are hence invested for a longer-term.

References

Ashlund, Anders, (2007).The Truth about Sovereign Wealth Funds, Foreign Policy.

Ficova, A. (2015). Analysis of Sovereign Wealth Funds: From Asset Allocations to Growth.

Global Journal of Management and Business Research, Vol 15, Issue 9.

http://www.hacienda.cl/english/sovereign-wealth-funds/economic-and-social-stabilization-fund.html

Chambers K (2016). A new Global Investment Power.

Martin, Michael (2008), “China’s Sovereign Wealth Fund”, Congressional Research Service Report to Congress, Washington DC.

Simon & Johnson, (2007). The Rise of Sovereign Wealth Funds, Finance & Development

International Monetary Fund, (2011). Global Financial Stability Report.

Sovereign Wealth Fund Institute. (2016, October 13). What is a SWF. Retrieved from http://www.swfinstitute.org/sovereign-wealth-fund/

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