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Sovereign Wealth Management - February 19, 2009

Initial conclusions from the EDHEC/Deutsche Bank Research Chair on Asset-Liability Management for Sovereign Wealth Funds to be presented to the press on 26 February 2009

The initial conclusions from the EDHEC/Deutsche Bank Research Chair on Asset-Liability Management for Sovereign Wealth Funds will be presented to the press in London on 26 February, 2009.

At the press conference, the theme of which will be "What Financial Management for Sovereign Wealth Funds?", Yassine Bouahara, Global Head of Structuring and Head of Global Markets for Europe, the Middle East and Africa, Deutsche Bank, Jean-René Giraud, Research Associate and Director of Development, EDHEC Risk and Asset Management Research Centre, and Noël Amenc, Professor of Finance, EDHEC Business School and Director of the EDHEC Risk and Asset Management Research Centre, will discuss the preliminary results of the research chair with journalists.

The new prudential and accounting rules are making investment in risky or high-volatility assets hard for all conventional institutional investors, whether pension funds or insurance companies.

So it is hardly surprising that, in the most recent crisis, the only institutions capable of taking long positions are sovereign wealth funds, because of their longer-term perspective. As it happens, as they are often unbound by short-term solvency constraints or even by marked-to-market valuations of their portfolios, sovereign wealth funds can take advantage of crises to acquire undervalued stocks.

But this flexibility should not by synonymous with an absence of risk management. Indeed, a sovereign wealth fund contributes to the sound financial management of a country. Its financial health and above all its ability to meet the objectives it has been set can have a significant influence on the welfare of the population.

It is in this light that in 2008 EDHEC began a major programme of research into the financial management of sovereign wealth funds.

The initial phase of the programme involves defining the problems and the objectives of the financial management of these funds. This phase should meet three main objectives:

  • Take into account the risks of the contributions to the fund
  • Manage risk-adjusted return and solvency objectives for the shorter or longer term
  • Participate in the meeting of long-term objectives, explicit or implicit.