Fiduciary Finance

Fiduciary Finance

Investment Funds and the Crisis in Financial Markets

Martin Gold

This multi-faceted analysis of institutional investment defines ‘fiduciary finance’ institutions as the third pillar of the financial system, alongside banks and insurers. It documents the role played by investment funds and the money management industry during the recent financial crisis, and provides an unashamedly critical review of the business disciplines which can dominate investment practices. It clarifies the economic significance of the investment industry (circa $60 trillion in assets) and the features which differentiate fiduciary finance from traditional financial institutions such as banks and insurers.

Chapter 7: The Rise of Sovereign Wealth Funds

Martin Gold

Subjects: economics and finance, money and banking


INTRODUCTION This book so far has dealt with the investment and retirement fund systems, for both private and public sectors within national markets. Sovereign wealth funds (SWFs), the term now used to describe statecontrolled investment vehicles, are an emerging segment of the fiduciary finance universe which has experienced rapid growth in size and transactional profile in the recent crisis in global financial markets. Collectively, it is estimated that SWFs injected $63 billion of new capital into the global financial institutions as the crisis in financial markets unfolded in late 2007 and into early 2008, more than any other entity except the US government. The total value of SWFs is estimated to exceed $3 trillion and market forecasters expect that this will more than triple to over $10 trillion by 2015. SWFs, therefore, are significant actors in financial markets, although because they are less transparent than mainstream collective investments, their role in financial markets has attracted controversy and concern, which makes understanding their operations and portfolio characteristics essential. If SWFs take long-term positions in financial markets and unlisted assets (including real estate and private equity) and they are motivated by risk and return considerations, they should provide a stabilizing influence and broadening in destination economies with benefits for all investors. Unlike traditional pension and investment funds, however, the SWFs have remained relatively opaque to scrutiny by academic researchers and financial regulators who have been stymied by limited disclosure. This has created heightened concerns about their effects on financial markets and individual...

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