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A US$100 Billion Supra-Sovereign Wealth Fund?
April 04, 2008

‘SWFs’ are far from a four-letter word. They are an inevitable and rational consequence of some of the most powerful structural trends in the global economy. Demographics, excess savings and artificially depressed sovereign long-term interest rates are all factors that have altered the ability and the willingness of sovereign funds to modify their investment portfolios. In this note, we argue that the IMF itself confronts similar pressures, and that, in our view, it should seriously contemplate setting up a supra-sovereign wealth fund, out of the gold holdings it has. Fully financing the operating expenses of the IMF, this prospective fund could be launched at around US$92 billion and grow to US$130 billion in 10 years’ time.

The IMF is rich, if it wants to be. Contrary to popular belief, the IMF is rich. It holds 103.4 million ounces of gold. At the current market price, this is worth US$92 billion, up from US$23 billion just five years ago. This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields.

We should not downsize the ‘fire station’ of the global economy. Just because there haven’t been any forest fires doesn’t mean we should downsize or close down fire stations. In many ways, the global economy needs the IMF’s intellectual and policy leadership more than ever, even though demand for traditional IMF programme lending may have dwindled. Investing some of the IMF’s assets in the financial markets could go a long way to resolving much of the pressures impinging on the IMF, by making the IMF more financially autonomous, without compromising its ability to provide financial help.

Ultimately a political decision, by the US. Ultimately, this will be a political decision to be made by the US, given that it has the largest voting share and, more importantly, it gave the IMF most of the gold holdings in the first place. But the economic and financial argument, in our view, is compelling.

Customers may obtain this report in its entirety at www.morganstanley.com/equityresearch or by calling 800-624-2063.



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