Sovereign Wealth Funds: What In the World Are They

1
Sovereign Wealth Funds What In the World Are
They?

• Keith Ambachtsheer
• January 2008

2
A Brief History of Capitalism

• 18th to 19th Century
• 20th Century
• Early 21st Century Facts

• Adam Smith Capitalism
• Industrial Revolution Capitalism
• Managerial Capitalism
• Institutional Capitalism
• 40T Global public equity portfolio
• 30T Global retirement savings
• 2.7T National / Regional
• Retirement Savings pools
• 2.7T Sovereign Wealth Fund
• pools

3
Theories of Capitalism

• Adam Smith 1759, 1776
• Karl Marx 1867
• Adolph Berle Gardiner Means 1932
• John Maynard Keynes 1936
• Peter Drucker 1976
• Stephen Davis, Jon Lukomnik, 2006
• and David Pit-Watson

4
The 30T Global Retirement Savings Pool Three
Management Contexts

• Retail
• Wholesale
• National / Regional

• Mutual Funds / Self-Managed Accounts
• Integrated Workplace Pension Plans
• Dedicated Retirement Savings Pools

5
Canadas 1.7T Retirement Savings Pool Three
Management Contexts

• Retail
• Wholesale
• National / Regional

• 700B
• 500B
• 500B

• RRSPs
• Integrated RPPs
• Caisse, CPPIB, BCIMC, AIMC, PSPIB, BIMCOR, NBIMC

6
Global Context
National / Regional Retirement Savings Pools
Sovereign Wealth Funds (SWFs)
Abu Dhabi Singapore Saudi Arabia China Kuwait Hong
Kong Russia Others
875B 440B 300B 300B 250B
140B 130B 250B 2.7T

• Japan
• Canada
• USA
• Norway
• Sweden
• Australia
• France
• Ireland
• New Zealand

• 1,000B
• 500B
• 500B
• 325B
• 150B
• 100B
• 40B
• 40B
• 15B
• 2.7T

7
Retirement Saving Pools and SWFsAgency /
Governance Issues

• Retail
• Wholesale
• Nat/Reg Retirement Savings Pools
• SWFs

• Intermediation tax 1-3 per year
• Cost/ Risk Measurement and Allocation
• Mission? White Hat
• Passive / Active?
• Black hat
• Mission? White Hat
• Passive / Active?
• Black hat

8
National / Regional Retirement Savings Pools A
Black Hat Story
Palm Beach Post - At end of political trail was
state money
Editorial December 23, 2007

• Florida State Board of Administration (FSBA) -
  180B
• Until January 2007, Governor Jeb Bush is one of
  three trustees ( the other two are also state
  politicians)
• Out of office in February 2007, Jeb Bush forms
  Jeb Bush and Associates, a financial consulting
  firm
• Coleman Stipanovich carries on as FSBA Executive
  Director. Hired by the FSBA trustees in 2002, he
  is the brother of Mr. Bushs former election
  campaign manager

9
A Black Hat Story (contd)

• In June, Lehman Bros. hires Jeb Bush and
  Associates
• In July and August, Lehman sells FSBA 842M in
  mortgage-backed securities. No records were kept
  of the decision
• In November, FSBA announces that the securities
  (along with other mortgage-backed holdings) have
  gone bad
• In December, Mr. Stipanovich resigns. Mr. Bush
  emphatically denies any wrongdoing, as does
  Lehman Bros.

10
SWFS White Hats or Black Hats?
11
Persuading SWFs to Become White Hats

• Mission
• Legal Structure / Governance
• Transparency

• What is the purpose of the fund?
• Arms-length legal structure and competent
  oversight?
• Full disclosure of investment results and
  holdings?

Independent White Hat Certification Process?