Sovereign Wealth Funds Need to Reinvent in 2020

The cost of holding high levels of foreign exchange reserves can be estimated as the difference between the interest rate paid by the central bank on domestic securities and the interest earned on foreign exchange reserves, adjusted for any exchange rate change.

I am of the view that during the coronacrisis this spread is likely to change very fast. The close relationship between SWFs and country central banks will come under pressure, especially for the petrodollar SWFs as oil prices have tanked to less than $30. Of course not all SWFs are created equal: they lie along a spectrum of risk appetite. Those that in the past demonstrated a strong willingness to lever up and make strategic purchases, serve dual objectives of wealth creation and support of their country’s policies will now need to rethink their mandates. In order to do that,  I  recommend that they need to think in terms of the larger eco-system and not silo mandate, as we showcase in this visual.

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Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech ActiveAllocator.com, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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