Asia-Focus-Rise-of-Asian-Sovereign-Wealth-Funds-March-2015.pdf - ASIA FOCUS FRBSF | COUNTRY ANALYSIS UNIT | MARCH 2015 THE RISE OF ASIAN SOVEREIGN


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FRBSF | COUNTRY ANALYSIS UNIT | MARCH 2015 T HE R ISE OF A SIAN S OVEREIGN W EALTH F UNDS B Y : N ICHOLAS B ORST A SIA F OCUS Asia Focus is a periodic newsletter issued by the Country Analysis Unit of the Federal Reserve Bank of San Francisco. The information contained in this newsletter is meant to provide useful context and insight into current economic and financial sector developments in the Asia Pacific region. The views expressed in this publication are solely that of the author and do not necessarily represent the position of the Federal Reserve System. purred by the region’s rapid economic development, sovereign wealth funds in Asia have increased in both size and number over the past decade. These funds have become large and active participants in global financial markets and they frequently make high-profile foreign investments. Given their size and close links to governments, sovereign wealth fund investments often attract media attention and are scrutinized for political motivations. The perception that many Asian sovereign wealth funds are not transparent in their activities and investments has also raised concerns. This Asia Focus provides an overview of sovereign wealth funds, evaluates the structure and activities of major funds in Asia, and compares the transparency of Asian funds relative to international best practices. Overview of Sovereign Wealth Funds Definitions of sovereign wealth funds vary greatly, making comparative research difficult. The U.S. Department of Treasury adopts a relatively narrow definition that sovereign wealth funds are government investment vehicles that are funded by foreign exchange assets and which are managed separately from the official reserves of the monetary authority. 1 The Federal Reserve System adopts a broader definition that sovereign wealth funds are investment funds that are owned by a national or state government . 2 In 2008, the International Working Group of Sovereign Wealth Funds (IWG-SWF) 3 defined sovereign wealth funds as special purpose investment funds or arrangements that are owned by the general government. It further stated that sovereign wealth funds are created for macroeconomic purposes; hold, manage, or administer assets to achieve financial objectives; and employ a set of investment strategies that include investing in foreign financial assets. This Asia Focus follows the IWG-SWF definition and employs an analytical framework proposed by the International Monetary Fund (IMF) that classifies sovereign wealth funds by investment purpose. Sovereign wealth funds can be divided into five general categories by investment purposes: stabilization funds, savings funds, development funds, pension reserve funds, and reserve investment corporations.
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