First of all, an important difference between sovereign wealth funds and general investment funds is that they attract huge interests and their every move will be particularly eye-catching, so it is difficult to maintain anonymity and privacy in the market. Once the market knows that sovereign wealth funds intend to invest in an asset or securities, the price of the asset will rise, thus increasing the investment cost of sovereign wealth funds. Secondly, most of the investments of sovereign wealth funds are distributed in other countries. Because of its sensitive government background, it often causes suspicion, invisible resistance and even open hostility in all aspects of the host country.
In order to realize the successful operation of sovereign wealth funds, we should conscientiously sum up the experiences and lessons that can be used for reference. The operation of the World Sovereign Wealth Fund has three most important implications for China.
First of all, we should establish clear principles of commercialization, specialization and independence. The so-called commercialization, that is, the articles of association of sovereign wealth funds should clearly stipulate that the funds only pursue pure commercial goals, that is, maximize the long-term investment value, and do not mix other non-commercial political or social goals.
Practice has proved that due to its background, sovereign wealth funds are extremely vulnerable to political influence and bureaucratic intervention from all sides, and are forced to pursue diversified but often conflicting goals. The consequence of this is that it is difficult to achieve the best match between investment risk and return at the expense of its independence and professional operation ability. Most of the funds of sovereign wealth funds are invested in overseas assets, which is extremely politically sensitive. If a country's sovereign wealth fund lacks sufficient commercialization and operational independence, it may be regarded as only a government policy tool, so it is more vulnerable to political accusations and resistance from the host country.
Second, in order to ensure commercialization, specialization and independence, on the one hand, sovereign wealth funds should clearly establish relations with their board of directors and shareholders (countries), with the central bank and the Ministry of Finance, with other government ministries, with financial supervision departments, with investment targets, especially with their subsidiaries. Any vague relationship definition will inevitably lead to unnecessary interference from all sides of sovereign wealth funds, thus affecting their commercialization, specialization and independent operation.
On the other hand, how to establish the internal organizational structure, governance model and management team of sovereign wealth funds is also very important. Successful sovereign wealth funds, such as Abu Dhabi Investment Authority of the United Arab Emirates, GIC of Singapore and Norwegian government pension fund, are committed to imitating the organizational form of private investment companies in the international financial market, avoiding copying the structure of government administrative organs, especially highlighting the core decision-making functions and autonomy of the board of directors and professional investment committees, and paying attention to organizational streamlining and decision-making efficiency.
One of the important implications of this is that sovereign wealth funds are essentially specialized commercial organizations, not government administrative organs. Applying the administrative model is bound to suppress professionalism and business culture, leading to the rigidity of similar bureaucratic organizations, which is obviously not conducive to its efficient operation. In order to ensure the core mission of achieving a good return on investment to the greatest extent, there are few civil servants among the staff of sovereign wealth funds in the United Arab Emirates and Singapore, but they all try their best to attract and recruit first-class financial talents in the international financial market. Most fund managers, including chief investment officers, are external professionals.
Third, external management plays an extremely important role in the management of sovereign wealth funds.
Sovereign wealth funds with good performance records entrust a large part of their funds to external professional institutions for management. Generally, they will give priority to professional investment managers with high qualifications, international experience and development potential in China, so as to cultivate the domestic institutional investor industry, which is still in an extremely naive stage. Secondly, these sovereign wealth foundations choose world-class investment institutions, including investment banks, PE companies, hedge funds and traditional asset management companies, as their external managers, which can not only obtain higher expected return on investment, but also obtain investment research reports, market intelligence information and investment management experience provided by external professional institutions.
For most sovereign wealth funds, external management is very important. Through external management, sovereign wealth funds can make up for the serious shortage of professionals in government investment institutions, and at the same time avoid sovereign wealth funds bidding for assets directly in the international financial market, which can greatly reduce the special market risks and political risks faced by sovereign wealth funds.