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Sovereign Wealth and Pension Fund Issues

Author

Listed:
  • A. Blundell-Wignall

    (OECD)

  • Yu-Wei Hu

    (OECD)

  • Juan Yermo

    (OECD)

Abstract

Sovereign Wealth Funds (SWFs) are pools of assets owned and managed directly or indirectly by governments to achieve national objectives. These funds have raised concerns about: (i) financial stability, (ii) corporate governance and (iii) political interference and protectionism. At the same time governments have formed other large pools of capital to finance public pension systems, i.e. Public Pension Reserve Funds (PPRFs). SWFs are set up to diversify and improve the return on foreign exchange reserves or commodity revenue, and to shield the domestic economy from fluctuations in commodity prices. PPRFs are set up to contribute to financing pay-as-you-go pension plans. The total of SWF pools is estimated at around USD 2.6 trillion in 2006/7, and is getting bigger rapidly, owing to current exchange rate policies and oil prices. The total amount for PPRFs is even larger, around USD 4.4 trillion in 2006/7, if the US Trust Fund is included (USD 2.2 trillion if excluded). SWFs and PPRFs share some characteristics, hence give rise to similar concerns. However, their objectives, investment strategies, sources of funding and transparency requirements differ. There is concern about strategic and political objectives of SWFs, and their impact on exchange rates and asset prices. But SWFs also provide mechanisms for breaking up concentrations of portfolios that increase risk. Enhancing governance and transparency of SWFs is important, but such considerations have to be weighed against commercial objectives. Problèmes soulevés par les fonds souverains et les fonds de pensions Les fonds souverains sont des pools d‘actifs détenus et gérés, directement ou indirectement, par des pouvoirs publics et répondant à des objectifs nationaux. Ces fonds suscitent des préoccupations en termes de : (i) stabilité financière, (ii) gouvernement d‘entreprise et (iii) interférences politiques et protectionnisme. Parallèlement, les pouvoirs publics ont constitué de grands pools de capitaux destinés à financer les systèmes publics de retraite, les fonds de pension publics. Les fonds souverains sont constitués pour diversifier et améliorer la rentabilité des réserves de changes ou des revenus tirés des matières premières ainsi que pour protéger l‘économie nationale des fluctuations des cours des matières premières. Les fonds de pension publics sont constitués pour contribuer au financement des plans de retraite par répartition. Le total des actifs des fonds souverains est estimé aux alentours de USD 2 600 milliards en 2006/7, et il augmente rapidement, du fait des politiques actuelles de taux de change et des cours du pétrole. Le montant total des actifs des fonds de pension public est encore plus important, on l‘estime en effet à quelque USD 4 400 milliards pour 2006 si l‘on y inclut le « US Trust Fund » (USD 2 200 milliards autrement). Les fonds souverains et les fonds de pension publics ont des caractéristiques communes et, de ce fait, soulèvent des inquiétudes similaires. En revanche, leurs objectifs, leurs stratégies d‘investissement, leurs sources de financement et leurs obligations en matière de transparence diffèrent. Les objectifs stratégiques et politiques des fonds souverains sont sources de préoccupation, de même que leur impact sur les taux de change et les prix des actifs. Cela étant, ils sont également assortis de mécanismes permettant de rompre les concentrations de portefeuilles qui ont pour effet d‘accroître les risques. Il est important d‘améliorer la gouvernance et la transparence des fonds souverains, mais ces considérations doivent être mises en balance avec les objectifs commerciaux.

Suggested Citation

  • A. Blundell-Wignall & Yu-Wei Hu & Juan Yermo, 2008. "Sovereign Wealth and Pension Fund Issues," OECD Working Papers on Insurance and Private Pensions 14, OECD Publishing.
  • Handle: RePEc:oec:dafaab:14-en
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    File URL: http://dx.doi.org/10.1787/243287223503
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    Cited by:

    1. Chaisse, Julien & Chakraborty, Debashis & Mukherjee, Jaydeep, 2010. "Managing India's Foreign Exchange Reserve: A preliminary exploration of issues and options," MPRA Paper 22873, University Library of Munich, Germany.
    2. Boubakri, Narjess & Cosset, Jean-Claude & Grira, Jocelyn, 2017. "Sovereign wealth funds investment effects on target firms' competitors," Emerging Markets Review, Elsevier, vol. 30(C), pages 96-112.
    3. Kotter, Jason & Lel, Ugur, 2011. "Friends or foes? Target selection decisions of sovereign wealth funds and their consequences," Journal of Financial Economics, Elsevier, vol. 101(2), pages 360-381, August.
    4. Murtinu, Samuele & Scalera, Vittoria G., 2016. "Sovereign Wealth Funds' Internationalization Strategies: The Use of Investment Vehicles," Journal of International Management, Elsevier, vol. 22(3), pages 249-264.
    5. Kerry Liu, 2017. "Singapores Temasek Holdings Control Mechanisms and the Performance of the Firms Controlled by Temasek," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(2), pages 188-205, February.
    6. repec:eee:glofin:v:34:y:2017:i:c:p:43-53 is not listed on IDEAS

    More about this item

    Keywords

    asset management; fonds de pension; fonds souverains; foreign reserves; gestion d’actif; gouvernance; governance; pension fund; réserves de change; sovereign wealth funds;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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