vienna af may_2014

Current Issues of Science and Research in the Global World

Antonia FICOVA

Doctoral Student at Faculty of Economics and BusinessPan European University, Bratislava

[email protected]

May 28, 2014

Role of Sovereign Wealth Funds During Crisis: Statistical Analysis of Their Returns and Equity

Proportions

OUTLINE

o Research Methodology,o Literature Review,o Categories of SWFs,o Assets under management of SWFs,o Sovereign investing in times of crisis,o Hypotheses, o Conclusions,o Future of SWFs.

Antonia Ficova, Department of International Business, Pan European University, Bratislava, 2014

RESEARCH METODOLOGY

oqualitative and quantitative analysis,

ocomparative research,

othe ‘Student’ t-test, TINV


LITERATURE REVIEW

Monk (2009) describes SWF´s as:

„they are government-owned and controlled (directly or indirectly), have no outside beneficiaries or liabilities and that invest their assets, either in the short or long term, according to the interests and objectives of the sovereign sponsor“


LITERATURE REVIEW

Balin, B. J. (2008) presents why countries establish SWF´s:

„... is that, when the country’s natural resources are exhausted, therefore, future generations can continue to live prosperously using the earnings of their forefathers... when a country is faced with a competitiveness crisis, it can call on its swf assets to reinvest in new sectors of the economy that can revive the country’s competitive advantages“


CATEGORIES OF SWFs

The SWFs may be grouped by Mezzacapo, S. (2009, p.15) in the following categories:

oStabilisation Funds;oSavings Funds;o Reserve Investment Corporations;o Development Funds;o Pension Reserve Funds.


Assets under management of SWFs


Source: Pregin

SOVEREIGN INVESTING IN TIMES OF CRISIS

othe spread of the sub-prime crisis in 2007 SWFs have invested between 60 billion USD / Asian SWFs /;

ostabilizing role as significant source of liquidity in global financial markets;

ostabilizing share prices, SWFs could have a volatility-reducing impact on markets;

ostabilization funds played prominent roles in financing government operations.

oRecapitalization of banks.


Source: MEZZACAPO, S. (2009), The so-called

"Sovereign Wealth Funds": regulatory issues, financial

stability and prudential supervision, European

Commission, Economic Papers 378, p. 98-99.

Source: Author´s calculations.

N=12 SWFs

The ‘Student’ t-test distribution with (N−1)

degrees of freedom


TESTING HYPOTHESIS I.

CONCLUSION FROM TESTING HYPOTHESIS I.

o showed an increase of SWFs in their returns, during period 2008 and 2010,

o their performances in 2010 could be caused through changes in their portfolios,

o due the fact of implementing different asset allocations after 2008,

o as a result of hypothesis, we accepted an alternative hypothesis,

o that means this method showed an increase, what is a statistically significant.


The reliability is 95% and we determine mean the reliability of proportion equity in asset allocation in SWFs.


N=12 SWFs

TESTING HYPOTHESIS II. part I.



1

111

21

1

21 n

stx

n

stx

1

11

44,1620,208,44

11

44,1620,208,44

%9599,5417,33


degrees of freedom Two-sided confidence

%9521,35

95,011

44,1679,108,44

11

11

P

P

n

stxP


degrees of freedom Left-sided reliability

ns

xt

86,112

44,16

21,3508,44

=

t crit = 2,20

two-sided t-distribution is

calculated by TINV

TESTING HYPOTHESIS II. part II.


CONCLUSION FROM TESTING HYPOTHESIS II.

By using Methods Student's t-distribution and TINV showed:

o that proportion of equity in asset allocations in 12 observed SWFs supposed to be between 33,17 to 54,99 percent of total portfolios at 95 percent probability,

o by using next hypothesis we may say that deviation is caused by random selection of funds in observed file Z,

o therefore we accepted null hypothesis; 44,08=35,21;

o what is not statistically significant.Antonia Ficova, Department of International Business, Pan European University,

Bratislava, 2014

FUTURE OF SWFs

oover the past year AUM of Middle Eastern SWFs have increased by 6%,

ocompared to the 19% growth in assets of Asia-based sovereign wealth funds;

oPreqin tracks 27 SWFs in 2014;

ocurrently India, Bolivia and Panama are all undergoing discussions to form their own SWFs;

othese investors have reached a size comparable to that of the entire alternative assets industry.


REFERENCES1. Van der Zee, Eva, Sovereign Wealth Funds and Socially Responsible Investing: Do’s

and Don’ts (June 13, 2012). European Company Law, Kluwer Law International, Special Issue on CSR and SRI, 2012, Volume 9, Issue 2, pp 141-150; University of Oslo Faculty of Law Research Paper No. 2012-15.

2. Balding, Christopher, Innovations in Sovereign Wealth Funds for National Development (July 27, 2012).

3. In, Francis Haeuck and Park, Raphael Jonghyeon and Ji, Philip and Lee, Bong Soo, Do Sovereign Wealth Funds Stabilize Stock Markets? (August 30, 2013).

4. Wagner, Daniil, Sovereign Wealth Funds: Investment Objectives and Asset Allocation Strategies (October 28, 2013).

5. Miracky, W.- Bortolotti, B. (2009), "Braving the New World: Sovereign wealth fund investment in the uncertain times of 2010", Fondazione Eni Enrico Mattei, Monitor Group, SWF Annual Report 2010, 78

6. Mezzacapo, S. (2009), "The so-called "Sovereign Wealth Funds": Regulatory issues, financial stability and prudential supervision", European Economy, Economic Papers 378:106

7. Gugler, P. - Chaisse, J. (2009), "Sovereign Wealth Funds in the European Union General trust despite concerns", NCCR Trade Regulation Research, No.4

8. Monk, A.H.B. (2009), "Recasting the Sovereign Wealth Fund Debate: Trust, Legitimacy, and Governance", University of Oxford, 34

9. Balin, B. J. (2008), "Sovereign Wealth Funds: A Critical Analysis", The Johns Hopkins University School of Advanced International Studies (SAIS), 18

10. JAIN, S., Integrating Hedge Fund Strategies in Sovereign Wealth Portfolios, Citi Capital Advisors, November 2009, p.3

11. Preqin, available at: https://www.preqin.com/item/2014-preqin-sovereign-wealth-fund-review/1/7594

12. Sovereign Wealth Fund Institute, available at: http://www.swfinstitute.org/fund-rankings/

13. IMF, available at: http://www.imf.org/external/pubs/ft/weo/2013/02/weodata/weorept.aspxAntonia Ficova, Department of International Business, Pan European University,

Bratislava, 2014

http://www.swfinstitute.org/fund-rankings/

Thank you for attention!

Antonia [email protected]


vienna af may_2014

Economy & Finance