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Do countries need sovereign wealth funds?
It’s not a prerequisite but sovereign wealth funds (SWFs) can provide several benefits.
Benno Klingenberg-Timm spoke with Asian Investor about the benefits of setting up SWFs to invest foreign exchange reserves.
It is not necessarily a prerequisite but the experience of Singapore or China shows that the “diversification for foreign reserves becomes more efficient and the return on accumulated wealth is higher.”
Benno Klingenberg-Timm
Head of APAC sovereign clients
What are the benefits of SWFs?
Benno lists 3 benefits of establishing SWFs:
- Attract talent and skills at competitive market rates – this can help SWFs invest more effectively;
- Act as a “centre of excellence” that could potentially benefit the country through the transfer of knowledge around global capital markets and financial expertise; and
- Provide potentially higher return due to a wider investment universe
Assessing the performance of SWF
Benno says that recently well-established SWFs have assessed their performance again a “reference portfolio”. This is a simple benchmark which comprises listed equity and fixed income only – usually 70% equity and 30% fixed income.
The SWF needs to beat the reference portfolio by diversifying “across a wide range of asset classes including alternative asset classes and active management.”
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