SWF Radar RussianNationalWealthFund

RosBusinessConsulting reports that, “Russia’s National Wealth Fund is expected to amount to over $100bn by the end of 2008, Deputy Finance Minister Dmitry Pankin told a press conference in Moscow today.”

On the same subject, Thomson Reuters writes that, “Russia has filled up its Reserve Fund for this year, and further cash from high oil prices will go to its National Wealth Fund, which is earmarked for riskier investments, its deputy finance minister said on Wednesday.”

Thomson Financial reports that, “Russian billionaire Alexander Lebedev, who is seeking to buy tour operator Oeger Tours, has warned Germany against investments by Russian sovereign wealth funds because of corruption he says exists in the country’s bureaucracy. In an interview with Welt am Sonntag, Lebedev also expressed sympathy with the German government’s aim to control investments by sovereign wealth funds in industries that affect its national security.”

RIA Novosti reports that, “Russia’s Finance Ministry gave assurances on Saturday that the tumbling share prices of the two largest U.S. mortgage lenders will not harm Russia’s Reserve and National Prosperity [National Wealth] funds.”

Thomson Reuters reports that, “The Russian government is in talks with UBS and other Swiss banks on the management of its two oil wealth funds [the Reserve Fund and the National Wealth Fund(NWF)] which total $163 billion, Deputy Finance Minister Dmitry Pankin said on Tuesday.”

Thomson Reuters writes that, “Japan’s Liberal Democratic Party is set to call for a 10 trillion yen sovereign wealth fund using public pension funds, the Nihon Keizai Shimbun financial daily reported on Wednesday.”

The article adds that the LDP’s proposal comes amid calls for Japan’s $1.44 trillion state-run Government Pension Investment Fund, the largest in the world, to seek higher returns.

Categorizing an investment vehicle set up to invest the assets of the Government Pension Investment Fund as an SWF adds more vagueness to the already vague term “sovereign wealth fund.”

The Government Pension Investment Fund is, according, for example, to an OECD working paper (PDF) released in January 2008, a social security reserve fund (SSRF), defined as a fund that is “set up as part of the overall social security system, where the inflows are mainly surpluses of employee and/or employer contributions over current payouts, as well as, in some cases, topup contributions from the government via fiscal transfers and other sources.”

According to the report, SSRFs live alongside sovereign pension reserve funds (SPRF), which are “established directly by the government (completely separated from the social security system), [with] financial inflows… mainly from direct fiscal transfers from the government,” as one of two sub-categories of public pension reserve fund (PPRF).

Since the definition of SSRFs, of which the Government Pension Investment fund is an example, contains reference to “mainly surpluses of employee and/or employer contributions over current payouts”, such funds can only at a stretch be considered to relate to sovereign wealth, unlike their SPRF siblings. The acceptance of the term “sovereign wealth fund” to describe a vehicle designed to invest the assets of such an SSRF would therefore suggest that the sovereign character of assets under management is not a necessary condition for the categorization of such an investment vehicle as an SWF.

Although this may seem academic, it suggests that the concerns raised by sovereign wealth funds are not concerns about sovereign wealth per se but are in essence concerns about something else, such perhaps as the (at least potential) political manipulability of funds that invest abroad. If this is the case and if the concerns have indeed been misunderstood, then the distinction in the context of sovereign wealth fund investment between SWFs (in the form of such funds as ADIA and CIC) and, say, public pension funds may come to be recognized as one without a substantial difference.

Vladimir Putin’s denial to Henry Paulson yesterday of the existence of a Russian SWF, while the National Wealth Fund is generally considered to be an SWF, suggests (since the National Wealth Fund has yet to invest abroad) that engaging in foreign investment may be considered a necessary condition for categorization as an SWF, while the sovereign character of managed funds may not.

The fact that SOEs have always been discussed in the context of SWFs (and that the DP World and CNOOC debacles kicked of the contemporary debate now considered to be a debate about sovereign wealth funds in the first place) suggests, in turn, that fund-like character is also not a necessary condition for categorization as an SWF. Note also that Gazprom and other Russian SOEs are also often mentioned in the context of sovereign wealth investment, as are Chinese banks and steel companies, among others.

And the clearest recent example of protectionism against a foreign fund is that of CPPIB’s failed attempt to acquire a 40 percent stake in Auckland Airport, which was scuttled by the New Zealand government for questionable reasons. Although CPPIB is often mistaken for a sovereign wealth fund, it in fact shares very little in common with SWFs, and certainly nothing substantial. Yet many of the concerns raised about CPPIB in the context of the potential New Zealand investment were, in essence, identical with those raised in the west about SWFs. Again this suggests that the entire debate may not, in essence, be about sovereign wealth funds or even necessarily about foreign state investment - or that it may at least evolve into a different debate.

RIA Novosti reports that, “Russia’s Reserve Fund, set up to accrue surplus revenues from oil exports, totaled $130.3 billion as of July 1, while the National Prosperity Fund [also known as the National Wealth Fund] stood at $32.85 billion, the Finance Ministry said.”

Thomson Reuters reports that, “Russia does not yet have a sovereign wealth fund (SWF) but is working to create one, Prime Minister Vladimir Putin told U.S. Treasury Secretary Henry Paulson on Monday.”

The article quotes Putin as telling Paulson that, “Since we do not have a sovereign wealth fund yet, you are confusing us with someone else. But we are ready to [create a SWF], especially if you want us to.”

Russia’s National Wealth Fund (also known as the National Welfare Fund or National Prosperity Fund), which was formed by splitting the Stabilization Fund in two (with the greater part of the assets being assigned to the Reserve Fund, the other fund formed in the split), is generally considered to be Russia’s SWF.

Taking the second part of the Putin quote at face value, it could make sense for the United States to ask that state foreign investments be channeled through SWFs that identify themselves as such. This would make such investments easier to track and regulate and would certainly facilitate and add significance to the work of the IMF’s International Working Group.

But the US Treasury’s recent agreement with its Chinese counterpart to clear the way for indirect foreign investment by China’s SWFs via the country’s state-owned enterprises disconfirms that such transparent channeling is being explicitly sought.

RosBusinessConsulting reports that, “Russia may establish a new state corporation to manage the National Welfare Fund [also known as the National Wealth Fund], Pyotr Kazakevich, the deputy head of a Finance Ministry department, was cited by the RBC Daily newspaper as saying on Thursday.”

Thomson Reuters reports that, “Russia plans to set up a government agency which will manage its sovereign wealth fund [the National Wealth Fund (NWF)] and make investment decisions, a government source told Reuters on Wednesday.”

The article adds that the agency will resemble ADIA.

The fund currently stands at $33bn, but it has been suggested (fourth paragraph) that it could quickly get much bigger.

A couple of articles over the last couple of days, including the one referenced in this post, have made reference to the fund as the “NWF”. This seems to be a new development, at least in the press, and certainly helps with the “Wealth or Welfare” confusion.

Itar-Tass reports that, “Russian President Dmitry Medvedev instructed the government to draft a package of regulatory documents that define a mechanism of investments from the National Welfare Fund [also known as the “National Wealth Fund”] by October 1, 2008.”