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    B724 - Sovereign Wealth Fund Bill 2014 (Second Reading), TSR Opposition


    Sovereign Wealth Fund Act 2014



    An Act to legislate measures that will enable the creation of a world-class Sovereign Wealth Fund to manage surplus government inflows, ensuring financial prosperity in the darkest of economic times


    BE IT ENACTED by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—

    1. Definitions
      1. A Sovereign Wealth Fund (SWF) is defined to be a state-owned investment fund, with purposes that will benefit the country's economy and citizens.
      2. Gross Domestic Product (GDP) is defined to be an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production.
      3. Asset Management is defined to be the coordinated activity of an organization to realize value from assets.

    2. Management Structure
      1. A new fund, known as British Investments, will be managed by the Treasury.
      2. The fund will comprise of an international SWF (known as British Investments - Global) and a domestic SWF (known as British Investments - Britain).
      3. A new Asset Management Division within the Bank of England will be set up to handle the funds for British Investments - Global.
      4. United Kingdom Financial Investments Ltd will be expanded to invest the funds for British Investments - Britain.
      5. The Crown Estate will be merged with United Kingdom Financial Investments Ltd.
      6. An ethical committee, known as the Advisory Committee on Ethics, will be established to blacklist investments in entities which directly contribute to human rights violations. This committee will be formed of designated officials from the Bank of England and renowned University professors in the fields of Economics and Law.

    3. Sources of Funding
      1. The Funding for British Investments will stem from:
        1. The initial assets transferred into British Investments.
        2. Surplus taxation revenue greater than 3% of GDP.
        3. Sales of assets held by British Investments and transfers between the fund's managing institutions.
        4. 80% of one off revenue streams from the sale of government-owned assets.
        5. 70% of income received from Oil & Gas related taxation by the UK government.

    4. Limits to Fund Withdrawals
      1. HM Treasury is not permitted to withdraw from the fund during a period of economic growth greater than 1% of GDP, unless Subsection 4.6 applies.
      2. A single withdrawal from British Investments may not exceed 5% of GDP.
      3. Funds may not be taken out unless a fiscal deficit existed in the previous fiscal year.
      4. Withdrawals may only be made for a total of three consecutive years, after which a two year gap must be maintained before another period of withdrawals are permitted.
      5. Total withdrawals from British Investments may not exceed 40% of GDP of the first year of withdrawal at the start of the period.
      6. HM Treasury is permitted to withdraw from the fund should the value of it exceed 110% of GDP, of which any surplus over this amount can be withdrawn to pay the national debt.
      7. Further amendments of Subsection 4 that increase the limit of withdrawals can be proposed by an independent commission and may only be granted when two thirds of the House of Commons votes in favour.

    5. Risk Management
      1. The fund's holdings in Equities may not exceed 70% of the fund's overall value.
      2. The fund's holdings in Real Estate may not exceed 10% of the fund's overall value.
      3. The fund's holdings in Infrastructure may not exceed 15% of the fund's overall value.
      4. The fund is not permitted to invest in fixed-income investments with a credit rating below BBB.
      5. The fund is not permitted to hold more than 10% of voting shares in any equity investment.

    6. Short Title, Commencement and Extent
      1. This Act may be referred to as the Sovereign Wealth Fund Act 2014.
      2. This Act will come into effect on the 1st of January 2015.
      3. This Act extends to the entire British Republic.


    Notes
    Spoiler:
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    1. This act is designed to consolidate the agencies within the Treasury and the Department of Business, Innovation and Skills into one unified holding fund, allowing for a more fluid management of the country's financial assets.
    2. The estimated starting Assets Under Management of the fund would be £62.4 Billion (obtained from the combined value of UKFI and CE), making it the 12th largest Sovereign Wealth Fund in the world.
    3. The ethical committee proposed will blacklist any investment entity considered to be causing severe environmental damage, committing human rights violations, as well as those whose headquarters reside in a nation under economic sanctions by the UK.
    4. Both divisions of UKI are expected to invest its funding using a long-term strategy that utilises its economy of scale to buy both traditional (Shares, bonds) and non-conventional (Real Estate, Infrastructure) assets. This means that fluctuations in the fund's returns can be moderate in the short term, however as it is unlikely that a withdrawal will occur in the near future, such an approach will increase the gains made significantly over a longer timeline.
    5. Risk management has been enshrined in law to encourage prudent and intelligent risk taking, thus reducing the likelihood of significant fund losses.
    6. Based on the funds of other nations (notably the Norwegian Government Pension Fund) that have a similar structure, the expected annualised return of the fund should be around 5%-7% per year.
    7. The diversion of some Oil & Gas revenues will lead to an expected loss of fiscal revenue of £3.3 billion using the latest figures as a guideline, though revenues are expected to continuously decline which reduces the overall impact on the budget.





    Changes from First Reading
    Renamed United Kingdom Investments to British Investments.
    Amended Subsection 2.6 detailing the structure of the committee.
    Amended Subsection 4 to increase the integrity of the fund by adding suggestions from the house.
    Added Subsection 4.7, giving an independent committee the ability to suggest adjustments to the withdrawal limits.
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