The Rise of the Middle East Sovereign Wealth Funds:Causes,Consequences and Policies

The basic purpose of sovereign wealth fund is pursuing a stable and sustainable economic development.The Middle East is the first region to set up sovereign wealth funds in the world.It is a resource-based sovereign wealth fund aiming to eliminate the potential impact of oil price fluctuations on the domestic fiscal and monetary policies,and balance the foreign exchange earnings.The sovereign wealth funds in the Middle East have developed rapidly in recent years and have exerted impact on regional economic development and macroeconomic policy.But the sovereign wealth funds in the Middle East are not able to cooperate with the domestic fiscal policy and balance the domestic economic fluctuations.Therefore,in order to play a more important role,the sovereign wealth funds in the Middle East need an improvement in investment,rules and target.

Enhancing the Transparency of Sovereign Wealth Funds:From the Middle East to China

Sovereign wealth funds,as an active participant in the global capital market,have attracted increasingly more attention from both academicians and practitioners.The opacity of the funds is one of the hot issues.A greater transparency is needed for the Sovereign Wealth Funds(SWFs)in the Middle East when they play an increasingly important role in the global capital market.By reviewing the transparency standards and examining the performance of SWFs in the region on information disclosure,this article lists the political,economic and cultural causes of the opacity and justifies the varieties in transparency.It also finds that the legitimacy of these funds should not be challenged because the political motivation does not necessarily change their market attributes.Although effective management of the funds requires improvement of transparency,the transparency standards should be moderate in the context of economic integration and financial globalization,hence international governance is a must.In addition to the reflection on the role of IFSWF in international governance,some lessons and suggestions are given to China’s SWFs at the end of the paper.

Implications of Sovereign Wealth Funds on the Governance of the Middle East Region

The rise of Sovereign Wealth Funds(SWFs)globally has become an irreversible trend.Among all the regions across the world that have established SWFs,the Middle East has the longest history and possesses huge strengths.Today,it is evident that the SWFs are playing ever-important roles in financial operations,local development and global cooperation for the Middle East,which has major implications for SWFs’potential on the governance of this region in the future.As an emerging and powerful financial instrument mastered by sovereign countries,especially for those with abundant natural resources,SWFs can eliminate the impact of commodity price fluctuations and foreign exchange earning surpluses on the domestic fiscal and monetary policies,contributing to a stable and sustainable economic and political development.As accepted regular method of close cooperation among countries,especially ones in the Middle East,SWFs can serve various economic and political agendas between the Middle East and the rest of the world,constituting wider and deeper connections despite the lack of private overseas trade and investments in this region.In fact,SWFs from a variety of countries,as well as international financial institutions with sovereign background,have participated actively in the governance of the Middle East region.However,there are still challenges for applying SWF to the governance of the Middle East region.The SWFs in the Middle East need to improve their performance and transparency consistently against the doubt of their sustainability due to the depreciation of oil prices and the complexity of the Arab world.The international community needs to treat the SWF threat theory recognized by some Western developed countries to facilitate further SWF involvements.Vigorous international cooperative mechanisms concerning SWF need to be created to address those issues.

Would China's Sovereign Wealth Fund Be a Menace to the USA?

The sovereign wealth club acquired a new member with the official launch of the China Investment Corporation （CIC） on 29 September 2007. The arrival of CIC has further heated up debate regarding sovereign wealth funds （SWFs） and their potential implications for global financial markets. This is because, in carrying out its investments, CIC can tap into China＇s huge official foreign exchange reserves, which by April 2008 had surged to US$1.76tn. CIC＇s initial working capital of US$2OObn makes it the fifth largest SWFs in the world today. This article seeks to analyze CIC＇s investment strategies, as well as their potential economic and political implications for global as well as US financial markets.

Investment Strategy of the Temasek Holdings

Sovereign Wealth Funds （SWFs） are generally known as investment funds owned by national governments and financed by the country＇s foreign currency reserves （dollar, euro, and yen）, often through their central banks or via direct investments. The study investigated the investment strategy of the Temasek Holdings as one of the most successful SWFs which is owned by the government of Singapore. Temasek Holdings was founded in 1974 to manage part of the government＇s revenues. Present turbulent times create a big pressure on healthy investment strategy of the SWFs. But total shareholder return for Temasek since its inception in 1974 has been a healthy 17% compounded annually. The main objective of the paper is to focus on the role of the Temasek Holdings as a company managed on commercial principles with an aim to achieve long-term sustainable returns. The study also analyzed Temasek Holdings＇investment strategy. The study provides answers to questions like： why Temasek is of the most successful SWFs and what is the fund risk management？ Another part of the paper compares investment strategy of the Temasek Holdings with other SWFs. The study has been conducted mainly on the basis of literature survey, secondary information and with using various web sites and research paper. The analysis has been also based on disclosures appearing in the Temasek annual reports over the period from 2008 to 2010.

China's Sovereign Wealth Fund:Weakness and Challenges

The establishment of sovereign wealth funds in large developing countries has generated hot debate among participants in the international financial market. When accumulated foreign exchange reserves surpass a sufficient and an appropriate level, the costs, risks and impacts of holding reserves on the macroeconomy of a country need to be considered. The Chinese Government established China Investment Corporation （ CIC） in 2007 to diversify its investment of foreign reserves and to raise investment income. However, because of certain conflicts of interest and institution-design caveats, CIC possesses some internal weakness, including a vague orientation, mixed investment strategies and an inefficient bureaucratic style. Although the subprime crisis has softened certain regulations and lessened rejection by the USA of ClC potential investments, the increased volatility and uncertainty of the market means that CIC is facing some new challenges in terms of its investment decisions. Moreover, CIC is competing with other Chinese investment institutions for injections of funds from the Chinese Government.

Political and Economic Analysis on SWFs of Saudi Arabia

Sovereign Wealth Funds established by Middle Eastern countries occupy an important position in world capital markets in terms of size or activity.However,regarding the establishment and operation of the funds,Saudi Arabia pursues a conservative investment strategy as a regional power,which is quite different from other Gulf countries.It is found that the economic conditions in Saudi Arabia,such as money supply,foreign exchange reserves,external debt and domestic economic development,which are generally considered to be the determining factors for the establishment of SWFs,were not favorable compared with those in the other GCC states in the last decades.However,even when those conditions have been improved since the beginning of this century,the performance of SWFs in Saudi Arabia still lags behind compared with other Gulf countries.As the economic indicators of the country will be studied,so will a political analysis be conducted in three specific perspectives:the significance of US dollar reserve for Saudi-US diplomatic relations,the deterioration of political environment of FDI in western countries after 9/11 and a mix of public and private ownership systems brought by the royal family.In the end,one can conclude that Saudi Arabia is a conservative investor on SWFs.