An Investigation On Sovereign Wealth Fund

In recent years, Sovereign Wealth Fund has become a hot issue in financial markets. This paper explained the emergence of Sovereign Wealth Fund and discuses the close relationships between the emergence of Sovereign Wealth Fund and the status of U.S. dollar. The investment style of Sovereign Wealth Fund will play a role in stabilizing the financial market. The research on Sovereign Wealth Fund is an important addition to the researches on the dollar standard and global financial markets.This paper reviewed the establishment of the global financial structure after World War II, because of the status of U.S. dollar as a central currency, many emerging market economy countries and oil-exporting countries accumulated a large amount of dollar reserves. However, small gains of the reserves and instability of U.S. dollar values is becoming a big trouble for these countries with the development of the economic globalization and the sharp increase of the dollar reserves. For the purpose of preserving and increasing the value of these reserve funds, governments begin to set up Sovereign Wealth Funds to manage their money.Because of the funding sources of Sovereign Wealth Fund and their special investing purpose, there is a big difference in the investment style between Sovereign Wealth Fund and ordinary investment fund. This paper further developed the modernportfolio theory and introduced a new third dimension------political utility. Afterconsidering the three factors------risk, return and political utility------of investment,this paper analyzed the features, barriers and risks of Sovereign Wealth Fund. Because of the government background of Sovereign Wealth Fund, their investment decisions depend on the governments' wills and there will be more purposes other than economic purpose, which make developed countries worried a lot.The global financial turmoil triggered by the subprime crisis caused people to think about the problem of the existing global financial system. Dollar issue is now a growing concern; we need a more stable global monetary system. The government of Sovereign Wealth Fund will help stabilize global financial market and help establish a new financial system, which may be a new idea to solve the nowadays financial problem.