The New Economics of Sovereign Wealth Funds

Foreword

List of Tables

List of Abbreviations

Acknowledgements

Introduction

A few stylized facts

SWFs under the spotlight

Misplaced fears

The plan of the book

Chapter 1. The macroeconomic dynamics of SWFs

1.1 Persistent Current Account Surpluses Translate into Accumulation of Foreign Assets

1.2 Absorption Constraints: The rationale for establishing SWFs and FWFs

1.3 The management of natural resources windfall

1.4 Commodities demand and the super-cycle theory

1.5 SWFs as alternative to an income tax system: what if Norway becomes like Saudi Arabia?

Chapter 2. Size and Growth of SWF Assets

2.1 Size and clusters of the SWF

2.2 Drivers of SWF growth

2.3 The optimal level of FX reserves

2.4 Future growth of FX reserves: Commodity versus non-commodity exporting countries

2.5 Size of SWFs by 2016

Appendix: How big could SWFs be by 2016?

Chapter 3. SWFs as investors in global markets

3.1 Clustering of SWFs in terms of objectives and investment profiles

3.2 SWF as strategic investors in domestic and global markets

3.3 Geographical and sectoral distribution of SWF direct investments: the 2007-08’s surge of investments in Western financials.

3.4 Investment Performance of SWFs and the impact of the financial crisis

3.5 Explicit and implicit liabilities of SWFs

3.6 Long term investments: SWFs as the ultimate risk bearers

Chapter 4. Risk management for SWFs

4.1 The crisis in retrospect

4.2 The complex qualitative nature of risk: uncertainty, chaos, black swans and fat tail

4.3 Banking regulation, herd behaviour and contagion

4.4 The evolution of the regulatory framework

4.5 Sketches of Risk Management for SWFs

4.6 An unconventional dimension of risk management: shareholders vs stakeholders

Chapter 5. SWFs in the geopolitics of the XXI century

5.1 The shift to East of the global economy: the New Silk Route

5.2 The law of unintended consequences? China’s influence through financial muscle

5.3 SWFs investing in the less developed economies: Africa as the last investment frontier

5.4 The new financial geographic: the emerging multipolar financial architecture

5.5 The dominance of the USD in global financial markets: SWFs as USD diversifiers

5.6 SWFs and the new regulatory framework for financial institutions: the upcoming “war for capital”

Chapter 6. The politics of SWF engagement

6.1 National responses to the growing role of SWFs

6.2 International response to the growing role of SWFs

6.3 SWFs response to international pressure

6.4 Santiago principles: rationale, implementation and reality

6.5 A digression on public versus private role in the economy

Chapter 7. Wrapping up

7.1 Towards a multipolar world

7.2 Governments’ activism in economic and financial affairs

7.3 Barbarian at the gates or welcome partners?

7.4 The end of the saving glut and the coming era of capital scarcity

7.5 Towards a multicurrency regime

7.6 A proposal to allay fears over transparency

7.7 The new responsibilities on the global scene

Bibliography

Subject Index

MASSIMILIANO CASTELLI, PhD, is Head of Global Strategy in the department advising central banks and Sovereign Wealth Funds at UBS Global Asset Management. In this role, he analyzes the market trends affecting the investment behaviour of sovereign institutions and works closely with investment specialists in providing investment advice and developing tailored investment solutions for this client segment. Since the political debate surrounding SWFs has appeared on the international policy agenda, he established himself as a global thought leader on the macroeconomic, financial and political trends in sovereign wealth management. He has often been called in by leading institutions and think tanks as an expert on global economic and financial matters, he regularly writes articles and essays on these topics and is often invited as a speaker at international conferences.

In his fifteen year long international professional career, he has been Head of governmental affairs for UBS in Europe, Middle East and Africa, Senior Economist for the Middle East region at UBS and an economic consultant advising governments and corporates in emerging markets on behalf of international institutions. He holds a PhD in Economics from the University of Rome where he lectured and an MSc in Economics from the University of London.

FABIO SCACCIAVILLANI, a PhD in Economics from the University of Chicago, is the Chief Economist and member of the Investment Committee of the Oman Investment Fund, which manages the Omani government’s oil revenues for the benefit of future generations. In this role, he develops economic forecasts, conducts analyses on global trends, evaluates asset class returns, and contributes to strategic decision-making. He is one of the world’s leading experts on the activity of Sovereign Wealth Funds, their influence on financial markets, and their investment strategies. He has written extensively on the political sensitivities that SWFs stirred in Western countries and the emergence of a multipolar world.

In his distinguished career he served as Director of Macroeconomics and Statistics at the Dubai International Financial Centre, Executive Director at Goldman Sachs, Senior Economist and Adviser at the European Central Bank and worked in several departments of the International Monetary Fund. He has an extensive scholarly publication record and is frequently interviewed and quoted on international media.