DIY SWF

Ashby Monk

As seen on the Government Shopping Network:

…You’ve heard about the SWF craze. Countries around the world are rushing to get SWFs to manage all sorts of tough macroeconomic spots and stains that just won’t come out with store-bought policies. Maybe you’ve thought to yourself, I’d like a SWF too. Now here’s your chance! With this easy to use roadmap you too could be the proud owner of a SWF…brought to you by the IMF…

In all seriousness, this new paper (Setting up a Sovereign Wealth Fund: Some Policy and Operational Considerations) is quite interesting. Its objective is to offer policymakers interested in setting up a SWF a roadmap of topics that should be considered before, during and after the SWF is set up. It takes the reader through definitions, sovereign characteristics, timing, objectives, rules (funding, draw-down), structure, governance and investment policy. In short, Das et al. have set out what they see to be the basics of DIY SWF. It’s a welcome intervention.

2 Responses to “DIY SWF”


  1. 1 rien huizer August 26, 2009 at 6:20 am

    Indeed. It may be useful for politicians etc to have an idea of what it takes to do this well and under what circumstances having a dedicated SWF is uniquely useful and feasible (rarely, the way I read this). I like especially the recommendation to adopt a “state-wide” balance sheet approach, but that will be inherently difficult for many existing funds, where the state is the economy’s principal domestic actor and engaged in a variety of activities that are part of the private sector in most developed economies. Das et al do not go into the legitimacy of reserves resulting from pegging the national currency substantially below hypothetical equilibrium rates, or long running fiscal surpluses. In these case floating the currency or respectively, reducing taxation would be more efficient than managing a financial waste dump. They do however mention that debt repayment (“shrinking the balance sheet”)would often be preferable to investing medium to long term surpluses in other ways. Completely agree. Hedge fund management is a high mortality activity, why should states try it? I think this is an extremely useful (not too technical, concise yet comprehensive) tool also for your case studies, much more so that the Santiago principles.

  2. 2 Ashby Monk August 26, 2009 at 2:40 pm

    I agree. It’s a useful conceptual tool for thinking about whether certain SWFs are justified…or whether certain countries without SWFs should have them. There are quite a few interesting things to think about in there…


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About

This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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