Connect with us

Should the UK have a Sovereign Wealth Fund?

Published

on

This article is written by Matthew Eyton-Jones.

Many countries, including Qatar, Kuwait, Singapore, Norway and Australia, have well established sovereign wealth funds, most of which were set up to provide for a day when the income from natural resources like oil and gas runs out. This makes sense for countries that are heavily reliant on natural resources, but what about a country like the UK, which has a developed and diverse economy?

Given the size and diversity of its economy, the UK would at first glance appear to be very unlike these countries, and it might be hard to envisage what benefit establishing such a fund would bring. However, on closer examination there is a very strong argument for doing so.

The UK has traditionally suffered from low savings rates compared to other developed countries. In addition, a significant amount of unfunded liabilities, or debt, has been built up in the benefits system, principally in the form of state pensions, the healthcare system and the provision of long-term care for the elderly.

In addition, a sovereign wealth fund could also be used to help fund core infrastructure projects both across the UK and internationally.

This has led to generational imbalances, with younger generations having to pay for these costs on behalf of older people. Increasing longevity and demographic imbalances between the old and young mean that pensions, healthcare and long-term care costs are being paid over much longer periods of time.

In order to help solve this problem, a sovereign wealth fund could be established with the express aim of addressing these long-term liabilities, similar to the way in which occupational pension funds were established from the 1930s onwards to provide funded systems to pay the pension promises made to employees.

In addition, a sovereign wealth fund could also be used to help fund core infrastructure projects both across the UK and internationally.

Given the temptation for governments to adopt a short-term approach when it comes to financial planning, a UK sovereign wealth fund would need to be established with a strong constitutional and governance framework in place to ensure that it could not be misused for short-term spending by the government of the day.

In particular, such a fund would need to have a strong independent board of trustees with legal and operational independence, on similar lines to funded occupational pension funds. Whilst a sovereign wealth fund could be established relatively quickly, it would take several decades for it to become fully invested, defined as the point where the fund broadly matches the liabilities it is intended to cover.

The UK government should honour its 2017 General Election manifesto pledge and start planning for the establishment of a sovereign wealth fund sooner rather than later.

The views in this article are expressed by Matthew Eyton-Jones. This article will also be featured in the October issue of the Sovereign Wealth Quarterly.

RDIF and Aggreko Reveal Strategic Partnership on Microgrids

Published

on

The Russian Direct Investment Fund (RDIF) and Glasgow-based Aggreko plc, a listed company that provides power, heating and cooling, signed a deal to cooperate on the development of microgrids. The parties plan to invest in the construction of facilities that will provide uninterrupted power supply and temperature control to industrial enterprises and utilities in the Russian regions. Aggreko operates one of its 6 global hubs in Tyumen, Western Siberia, through an entity called Aggreko Evraziya, OOO. In 2017, Aggreko plc acquired Younicos, a company specialized in the development of modular batteries and Microgrids control solutions.

Continue Reading

China and Russia Buy Up More Physical Gold

Published

on

The worst fears of the Federal Reserve may be coming true. The barbarous relic is once again offering some resistance to Fed policy as it maintains its uptrend from mid-November, and is being snapped up from central banks worldwide. Former Fed chairman Paul Volcker shared the central bank view that “Gold was the enemy.” If so, the enemy is gaining ground. China’s gold reserves quietly grew from December 2018 to February 2019. The People’s Bank of China disclosed in February 2019 that it increased its gold reserves by 10 tonnes that month, following purchases of 11.8 tonnes in January 2019, and 9.95 tonnes in December 2018. Goldman Sachs has listed central bank purchasing as the reason for the uptrend. Goldman Sachs expects to see gold at US$ 1,400 over the next six months, which would lift it well above its long-held resistance at US$ 1,350. China’s gold holdings are now US$ 79.5 billion. China, which is emphasizing diversification from the U.S. dollar, has been a fan of precious metals for years, and it has been encouraging its citizens to purchase gold and silver for a decade, when previous controls on precious metals were done away with. Now anyone in China can trade gold internationally with the swipe of a card.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

Continue Reading

AP1 Selects Approved Managers for Emerging Market Equities Mandate

Published

on

Sweden’s AP1 chose 14 external fund managers for its 45.3 billion SEK allocation to emerging market equities. These are approved managers for AP1, but not all of them will manage money for this mandate.

The managers selected are:
Aberdeen Standard Investments
BlackRock
First State Investments
Fisher Asset Management (Fisher Investments)
GMO
GQG Partners
JP Morgan Asset Management
KBI Global Investors
Legal & General Investment Management
RBC Global Asset Management (part of Royal Bank of Canada)
Robeco
TOBAM
UBS Asset Management
Wellington Management

Continue Reading

Popular

© 2008-2018 Sovereign Wealth Fund Institute. All Rights Reserved. Sovereign Wealth Fund Institute ® and SWFI® are registered trademarks of the Sovereign Wealth Fund Institute. Other third-party content, logos and trademarks are owned by their perspective entities and used for informational purposes only. No affiliation or endorsement, express or implied, is provided by their use. All material subject to strictly enforced copyright laws. Registration on or use of this site constitutes acceptance of our terms of use agreement which includes our privacy policy. Sovereign Wealth Fund Institute (SWFI) is a global organization designed to study sovereign wealth funds, pensions, endowments, superannuation funds, family offices, central banks and other long-term institutional investors in the areas of investing, asset allocation, risk, governance, economics, policy, trade and other relevant issues. SWFI facilitates sovereign fund, pension, endowment, superannuation fund and central bank events around the world. SWFI is a minority-owned organization.