Sovereign Wealth Funds (SWFs), Source of Permeant Financing Extends from SWFs to the EU from 2004 to 2014 Introduction: Transboundary Sovereign wealth fund investments have become increasingly visible in global capital markets.Which raised several questions about these funds by financial analysts, economists and even politicians and media.These state-owned sovereign institutions manage and employ government funds and differ in their structure and investment strategies from general pension funds and central bank investments of foreign reserves.The growing growth in the size and number of sovereign wealth funds is a clear sign of a shift in the world’s economic balance of power.Sovereign funds have also attracted interest and focus on many issues related to SWFs such as the transparency of these funds in terms of size and strategic plans, the impact of political factors on the management of these funds, and attention to the increasing role of governments in global markets. Research Methodology: First: Research problem The shift in investment behavior of sovereign wealth funds and the state of rush and risk have made these funds a major player in the global financial arena. This shift in the investment behavior and results of these funds has created a series of challenges for the global financial markets as an important source of funding and recipient countries for the investments of these funds which has made a case of lack of clarity in determining the real motives behind the investment trends of these funds. In light of this perception and the lack of clarity surrounding the sovereign wealth funds, the research raises the following research question: Do sovereign wealth funds have the potential to meet the funding needs or the budget deficit of the parent country?What are the potential effects on the performance of sovereign funds in relying on finance rather than on investment? Second: Research Importance The importance of the research is determined by the sovereign wealth funds and their investment orientations from wide ranging debates at various levels, whether financial, economic, and political or media, in the global arena.This is followed by wide channels and multiple dimensions to deal with sovereign wealth funds and their investment orientations. As well as the various visions that have been put on these funds, also the huge amount of research and studies conducted by researchers, centers and world research institutions, whether official or non-official and periodic reports, as well as books published on the sovereign wealth funds of Foreign language in front of the lack of research and studies in Arabic about these funds and topics surrounding them and limited to press articles, media reports and some research. Third: The Purpose of the research: The research aims to achieve several Purposes, including: The theoretical knowledge of sovereign wealth funds in terms of their concept, date of origin and structures.Statement of objectives and characteristics of sovereign wealth funds.Discussing the orientations of sovereign wealth funds, their investment strategies and the frameworks through which they operate.Examine and analyze the relationship between sovereign wealth fund investments and capital market financing policies. Fourth: Search hypothesis : In order to achieve the objectives of research and finding solutions to the problem and based on the above study the following hypotheses about the reactions of the market in the short and long term towards the investments of sovereign wealth funds: 1. Sovereign wealth funds establishments contribute to the stability of financial markets 2- Strong correlation between wealth funds. Methodology First: – Research Tools: – Ability to verify search hypotheses Descriptive statistical tools: 1- Arithmetic Mean It is a statistical metric that is frequently used in data characterization, 2. Standard deviation It is a measure of the extent of spacing of values in its arithmetic mean, calculated by the following equation: – 3- The highest and lowest value :- This characterization shows the highest and lowest value of the variables described during the test period. Second :- Data Analysis and Assessment Tools: In order to clarify the relationship between the SWFs and the changes in the share prices of the invested companies, the following methodology and tools were used for the purpose of analyzing and estimating the data: 1- The event study Methodology 2. Multiple regression It is one of the two main regression types, and includes more than two variables (r) and the rest of the independent variables (x), and is calculated according to the following equation: – whereas: Y: Variable (average unusual return per share). X1: first independent variable (stake size earned bet size). X2: Second Independent Variable (Governance of Fund ). X3: Third independent variable (transparency of Fund) X4: fourth independent variable (Linaburg-Maduell Transparency Index). ei: The amount of random error. Third :- Research Variables: During the study, four independent variables were used to represent SWF investments – size of stake – Fund Governance Scale by Truman 2008 – Transparency of the fund by Truman 2008 – Indicator Linaburg-Maduell for transparency Updated by Sovereign Wealth Funds Institute. Affect the dependent variable that represents Average Abnormal Returns For the shares of companies invested it During the period of time (+1 , -1 ) The reaction of prices in the short term, as well as the post-event period (+2, +160) in response to prices in the long run. Note // Regarding qualitative variables (Governance of Fund ) , (transparency of Fund) We will change them into quantitative variables by using (dummy variables) model :- Y’i = B0 + B1D1i + B2D2i + UI D1= Governance of Fund 1= D1 using Governance of Fund 0= D1 no using Governance of Fund D2 = transparency of Fund 1=D2 using transparency of Fund 0 = D2 no using transparency of Fund B0 = Absolute limit B1= The tendency of the dummy variable D1, which measures the impact governance of fund on sovereign wealth funds B2 = The tendency of the dummy variable D2 which measures the impact transparency of Fund on sovereign wealth funds UI = The amount of random error The model can be estimated using ( OLS ) Y’i = B0 + B1D1i + B2D2i + EI Sovereign Funds Concept Defined by the International Monetary Fund (funds or arrangements for investment with a special offer owned by the general government, and the general government establishes sovereign wealth funds for economic purposes, they are funds that retain assets or are employed or managed to achieve financial goals, using investment strategies including investment in foreign financial assets). We conclude from the above definition that: Sovereign funds are enterprises owned by government that invest public funds in long-term investments.Investment in financial assets is mostly outside the State.The objective of investment is to achieve financial returns.The main purpose of the spread of investment funds to achieve economic objectives contribute to development, and technologyInvestment funds are a two-way reserve financial warehouse:Investing funds in internal and external investments, thus achieving and contributing to the development and strengthening of local and international economies.On the other hand, the resources of the Fund to ensure the state budget (government) to fill the budget deficit during the periods of recession. Sovereign investment funds have types classified according to the objectives of each fund, which are: Stability funds aim to protect the economy and the balance of payments from volatile of oil and commodity prices.Savings funds for future generations, financing of renewable assetsEnterprises of reserves investment, to invest reserves.Development funds help fund socio-economic investment projects and help to promote the growth of potential output in the country concerned. Sources of income of sovereign wealth funds: Funds financed from surplus of raw materials revenue (oil).Funds financed from surpluses of current payments (non-oil countries).Funds financed from surplus revenues of privatization which is to achieve a very high financial returns from privatization. In France, the revenues of the privatization program amounted to $ 24 billion, and in Algeria it was $ 16 billion until 2008, thus these revenues are directed into financing the budget and transferring a part of it into sovereign wealth funds.Funds funded by budget surplus: Budget surpluses are directed to: Investment in financial assets.Modifying the structure of the economy.Repayment of debts if any.What more will be used in formation of SWF The importance and role of SWFs in the global financial system: Sovereign funds up to more than 12 trillion dollars by the end of 2015 and represents 1/6 of assets managed by insurance companies and 1/7 of the pension funds, so that the sovereign funds come fourth rank in terms of importance. This ranking earns funds a great importance in the represented areas. For example, the Norwegian Fund is an ideal model for the best investment practices within the field of transparency and governance. The Fund enhances the financial benefits compared to the returns of oil sales and enhances the stability of Norway’s general economy and its active and responsible role in society. The Singapore Fund enhances the social and economic growth and enhances the governmental enterprises management, develops technology, transport and logistics sectors as well as Gulf funds, It supports local economic growth through international and domestic investments. International investments provide ways of coordination and cooperation with the departments of the companies investing in them and identify different business models as well as procedures and strategies that would add to the local expertise a lot. Investments in multinational companies to gain important technologies and transfer expertise. Locally, it initiates investments targeting different sectors, enhancing economic growth and maintaining the financing of strategic investments. Arab funds amount to $ 1,779 billion, I.e. they make up 46% of the fund’s assets in the world The Gulf sovereign funds are directed to the direct investment (investment in technology). This is considered a positive step towards the investment strategies of sovereign funds where previously large investment in shares and bonds from financial markets and their impact on the economies of those countries. This strategy is part of the diversification of investment and reducing risks to achieve the best financial returns, with the possibility of reducing the cost of investment, and there are trends of some Arab funds to become the revenues of direct and indirect investment the main source of revenue of funds rather than relying on the source of oil revenues. The objectives of sovereign wealth funds (SWFs) Sovereign funds have multiple and varied objectives depending on the type of fund. There are common goals shared by all these funds in the world which are: Protect and ensure the stability of the budget and economy for sharp fluctuations in imports and exports.Achieving the largest return of the reserve of foreign exchange.Help the monetary authorities to absorb the investment of excess liquidity.Increased savings for emerging generations. Although Investment Funds Management (Sovereign) do not directly intervene in macroeconomic policies, there are three areas that exclude fund management interventions in state policy: Transfer funds to public budgets to meet emergency needs.Provide financial support to central banks to meet exceptional needs related to the payments budget.Intervention to ensure the stability of local institutions or companies that play a pivotal role in the economy The main source of information, data and studies pertaining to sovereign funds is the Sovereign Wealth Funds Institute (SWFI), a global organization that aims to study sovereign wealth, pensions, retirement funds, central acceptance, endowments and other public investment instruments over the long term. It also provides specialized consultancy and research in this field. And to provide research and studies centers with information required for various companies, funds and governments in the world. Classification of sovereign wealth funds in the world: Sovereign Wealth Funds has been classified and arranged by (Sovereign Wealth Funds Institute). Table )1 (shows the fund’s name and year of incorporation, total assets and financing source of the fund. Table )1 ( Global sovereign wealth funds by year of incorporation and source of financing SFund Name (Country)Year EstablishedTotal assets (billion dollars)Source of return Norway (Norwegian Pension Fund)1990824,9Oil Revenues Abu Dhabi (Abu Dhabi Investment Authority)1976773,0Oil Revenues China (China Investment Corporation)1997746,7Non-Commodity Saudi Arabia (SAMA) (Saudi Arabian Monetary Agency)—632,3Oil Revenues Kuwait Investment Authority1953592,0Oil Revenues Chinese Investment Corporation Saif (SYF)1993474Non-Commodity Investment portfolio of the Monetary Corporation (Hong Kong)1993442,4Non-Commodity KOMA Singapore Investment Co1981344Other Qatar Investment Authority2005256Oil Revenues National Social Security Fund of China2000236Non-Commodity TEMASEK Holding of Singapore1974193,6Other Emirate and Dubai Investment Corporation2006183Oil Abu Dhabi Investment Council1976110Oil Australian Future Fund200495Other Investment Governor of the Securities Commission of Kazakhstan200038Oil Russian welfare2008113.9Oil Libya200666Oil Algeria200050Oil Amman198034Oil Iraq20030,9Oil Palestine 0,8 Alabama19852.5Oil and Gas Alaska United States197640.3Oil South Korea200537Other Malaysia199336.8Other Azerbaijan199930.2Oil Ireland200130Other France200828Other Texas United States185424.4Oil Iran199923Oil Chile198521.8Copper New Mexico United States195814.3Other Brunei198330Oil Canada197615Oil New Zealand200313.5Other Botswana19946.9Diamond and Metals East Timor20056.3Oil and Gas Wyoming United States19744.7Metal Trinidad and Tobago20002.9Metal Brazil200811.3Other Bahrain20069.1Other Ras Al Khaimah20051.2Oil Nigeria20111Oil Venezuela19980.8Oil Vietnam20060.5Other Capriati19560.4Phosphate Gabon19980.4Oil Indonesia20060.3Other Mauritania20060.3Oil and Gas North Dakota United States20110.1Oil and Gas Equatorial Guinea20020.08Oil Mexico20006Oil Papua New Guinea2011_________Gas Mongolia2011—–Mining Sovereign wealth funds control $ 6.5 trillion: Traditionally, the spread of sovereign wealth funds depends on the financial benefits of rich countries that have surplus in trade balance, balance of payments, privatization, intellectual cash, and now the new development of sovereign wealth funds for countries with deficits in their balance of payments and trade balance and suffering from huge debts and thus the emergence of new sovereignty was not expected from global sovereign funds. Rich countries have focused on investing sovereign wealth funds outside their country in anticipation of rising inflation in their countries as well as diversifying their sources of income. Countries with a deficit in their trade balance and have large debt use sovereign wealth fund resources to move its economy against slowing scientific development and low trade volume rather than injecting money abroad. The plan is to attract foreign funding and invest it domestically to stimulate growth.Turkey has an annual external deficit of 30 billion dollars, so it is forced to attract foreign funds to fill the gap. Countries that are opening new sovereign funds from poor or deficit countries in its trade balance are seeking to partner with investors in sovereign wealth funds, pension funds and retirement in the National Fund for Investment and Infrastructure of the countries, including (India, Bangladesh). A great deal of caution is required from the local investment of sovereign funds in anticipation of red tape, financial malpractice or rampant corruption, as has happened to Malaysia’s MVDC fund for money laundering in six countries. It also requires caution against foreign investment where corruption and financial developments. Previous Studies Study (2010) Bortolotti et.al: Sovereign Wealth Fund Investment patterns and performance The study examined an analysis of (802) investment transactions in listed companies in the financial markets, and returns to (33) sovereign wealth funds for the period from May 1985 to November 2009. The study used a methodology to study the event and used different criteria to reach results. The main findings of the study are that sovereign wealth funds tend to invest in companies that are usually based in the Organization for Economic Co-operation and Development (OECD), and that the announcement of the investments of sovereign wealth funds in the financial market leads to an extraordinary return of positive shares during the period of the event 1, +1). The decline in the share price invested by the Fund in the long term depends on the size of the share capital acquired by the Fund. The larger the share acquired, the worse the performance of the share. Study (2009) Dewenter et.al: Firm Values and Sovereign Wealth Fund Investment The study focused on analyzing the impact of sovereign wealth funds on investee companies using regression analysis on a sample of (227) purchase transactions and (47) stock sale transactions by sovereign funds for the period from January 1996 to April 2008, where the results of the analysis showed that there were unusually positive returns to stocks as a result of investments by sovereign wealth funds, indicating the impact of sovereign funds on the investee company. Study (2009) Femandes, Nuno G: The study examined the analysis of changes in the financial and operational performance of companies in which the sovereign wealth funds invested 58 countries with 8000 transactions. The study introduced the theory of Tobin Q Theory in the analysis based on several variables (size of the company, growth difference, volume of leverage, cash assets). The study concluded that there is a common denominator between Sovereign Wealth Funds (31%) and Sovereign Wealth Fund investments (1.7%) for each sample, improving the rate of return on assets (ROA) and the rate of return on equity (ROE). Practical application and statistical tests: The study will be conducted on a group of selected countries that have more than one investment fund and compare the financing provided to the country’s economies and the financing of other countries using an advanced statistical software package. References E- Book 1- Truman, Edwin M., 2010, Sovereign Wealth Funds – Threat or Salvation?, 1st edition, Peterson Institute for International Economics Offiieial Publication:- 1- IMF, 2007, Global Financial Stability Report, Financial Market Turbulence Causes, Consequences, and Policies, October 2007, Washington. – Researches 2- Adam D. Dixon, and Ashby H.B. Monk, 2011, “What Role For Sovereign Wealth Funds in Africa’s Development?”, Oil-to-Cash Initiative Background Paper, Center for Global Development, October 2011. 3- Avendaño, Rolando and Santiso, Javier, (2009), ARE SOVEREIGN WEALTH FUNDS’ INVESTMENTS POLITICALLY BIASED? A COMPARISON WITH MUTUAL FUNDS, Working Paper No. 283, OECD DEVELOPMENT CENTRE, Paris, France. 4- Barbary&Bortolotti, 2011, “Braving World: Sovereign Wealth Fund Investment in the Uncertain time of 2010”, Third Annual Report on The Activity of SWFs. Monitor Company Group, L.P, 2011. 5- Bernstein, el. at., (2009), ” The Investment Strategies of Sovereign Wealth Funds”, Unpublished working paper No.112 , Harvard Business School, Harvard University, 2009. 6- Chhaochharia, V., Laeven, L., 2009. Sovereign wealth funds: their investment strategies and performance. Working paper. International Monetary Fund and CEPR No. 6959. Electronic copy available at: http://ssrn.com/abstract=1262383 Jouranls 1- Baghat, Gawdat, (2010). “Sovereign Wealth Funds: An Assessment” , Global Policy Volume 1 . Issue 2 . (May 2010) p.p(163-171). 2010 London School of Economics and Political Science and John Wiley & Sons Ltd. 2- Bortolotti et. al, (2010), Sovereign Wealth Fund Investment Patterns and Performance, Price College of Business, The University of Oklahoma. 3- Brown, S., and J. Warner. 1985, Using daily stock returns: The case of event studies, Journal of Financial Economics 14, p. 3-31. 4- Everly, George S. (2010). Sovereign Wealth Funds and Shareholder Democratization: A New Variable in the CFIUS Balancing Act, Maryland Journal of International Law 2009–10, Vol. 25:374, J.D., University of Maryland School of Law, M.B.A., Robert H. Smith School of Business, May 2010. pp(374-394).
