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A Research of the Strategic Asset Allocation of China Sovereign Wealth Fund
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TitleA Research of the Strategic Asset Allocation of China Sovereign Wealth Fund  
AuthorYu Haiyan and Hao Chengxiang  
OrganizationXIAMEN University; 
Key WordsSovereign Wealth Fund; Strategic Asset Allocation; Dollar Exchange Risk; Mean-Variance Model; Sensitivity Analysis 
AbstractBased on the two fund separation model by Gintschel & Scherer (2008), and under the strategic allocation target of CIC, this paper incorporates the foreign reserves managed by SAFE into our object function and conducts an strategic asset allocation optimization analysis of the sovereign wealth fund of our country from the perspective of hedging the dollar exchange risk. At the meantime, combining the current state and characteristics of our country’s sovereign wealth fund investment, this paper also extends the model to bring stocks, bonds, commodities, real estate and hedge fund into asset allocation, which is known as the allocation of categories of asset, and add the sensitivity analysis. The main conclusions and recommendations are as follows: 1) In the light of current ratios of foreign exchange reserve allocation, the share of stocks in CIC's optimal strategic asset allocation is about 40%, commodities around 40%, real estate around 15%, bonds and hedge funds less than 5%. 2) According to the current scale of foreign exchange reserves, about $600 billion should be injected into CIC in batches by SAFE, which means foreign exchange reserves under SAFE’s management shrink to about $3.2 trillion after the transfer. 3) Globally optimized strategic asset allocation would lower the overall variance of foreign exchange reserves as well as improve the yield. 4) 7.5% is appropriate to be set as CIC’s target rate of return. 
Serial NumberWP996 
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