A Portfolio Analysis of Sovereign Wealth Funds

Balding, Christopher

doi:10.1142/9781848164321_0004

Cited by 29 publications

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“…Most definitions of SWFs suggest these are state‐owned investment funds (not operating companies) that make long‐term domestic and international investments in search of commercial returns . Some definitions are broader than this, as in Truman (), who defines a sovereign wealth fund as “a separate pool of government‐owned or government‐controlled financial assets that includes some international assets.” Balding () shows that an expansive definition encompassing government‐run pension funds, development banks, and other investment vehicles would yield a truly impressive total value of “sovereign wealth.”…”

Section: What Are Sovereign Wealth Funds and Why Do We Care?mentioning

confidence: 99%

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Megginson

Fotak

2015

Journal of Economic Surveys

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We survey the literature documenting the rise of sovereign wealth funds (SWFs), which, with assets under management of over $5.4 trillion at year‐end 2014, are a major force in global finance. Research papers have analyzed the evolution of SWFs from stabilization funds to stand‐alone wealth management funds; we both survey this research and show that more than 25 countries have launched or proposed new SWFs since January 2008. The most salient and controversial feature of SWFs is that they are state‐owned; we survey the existing literature on state ownership and discuss what this predicts about the efficiency and beneficence of government control of SWF assets. We discuss the documented importance of SWF funding sources (oil sales revenues versus excess reserves from export earnings) and survey the normative literature describing how SWFs should allocate funds. We then summarize the empirical literature studying how SWFs actually do allocate funds—across asset classes, geographically, and across industries. We document that most SWF equity investments in publicly traded firms involve cross‐border purchases of sizeable minority stakes (median around 20%) in target firms, with a strong preference for investments in the financial sector. Next, we assess empirical studies examining the impact of SWF stock investments on target firm financial and operating performance, and find universal support for a positive announcement period stock price increase of 1–3%. This, however, is significantly lower than the 5% abnormal return documented for stock purchases by comparable privately owned financial investors in recent studies, indicating a “sovereign wealth fund discount.” We conclude by summarizing the lessons of SWF research and pointing out unresolved issues.

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Section: What Are Sovereign Wealth Funds and Why Do We Care?mentioning

confidence: 99%

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Megginson

Fotak

2015

Journal of Economic Surveys

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“…Balding (2008) analyses portfolios held by seven SWFs in 2008, highlighting a preference for investment grade bonds and liquidity. In relation to the equity component, the author shows that SWFs prefer to hold low-risk shares, typically large-cap blue chips, and domestic shares.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Lending, Investments and the Financial Crisis

Beccalli¹,

Poli²

2015

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“…Balding, 2008). 5 They thus invest in riskier asset classes and markets, including approximately 40-70 per cent equities and some combination of government-guaranteed and corporate bonds, real estate, private equity, commodities and foreign currency (Fernandez & Eschweiler, 2008: 12-13;IMF, 2008: 14).…”

Section: What Are Sovereign Wealth Funds?mentioning

confidence: 99%

Financial Ideas, Political Constraints: Sovereign Wealth Funds and Domestic Governance

Fini

2011

Competition & Change

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Rather than deconstruct sovereign wealth funds' (SWFs') significance for global capital markets, this paper asks the following question: why do SWFs exist at all? It consequently examines the politics behind SWFs' domestic origins, and the socioeconomic implications they pose for the constituents to whom they are ultimately accountable. It begins its analysis with the argument that SWFs are first and foremost domestic strategies of governance created to achieve specific short- and medium-term goals of the administrative state. The funds serve to immediately stabilize state actors' governance function by reconceptualizing problems of uncertainty in the quantitative and manageable terms of financial risk. This risk-based fiscal management strategy enables state actors to manage domestic expectations concerning various problems they may face: how to use extra-budgetary foreign exchange reserves, for example, or how to meet a future liability. For Ireland, the expectation that their highly depended-upon state pension system was unsustainable represented one such problem of uncertainty facing the Oireachtas in the late 1990s. Creating an SWF mandated to maximize financial returns through speculation thus immediately created forward-looking expectations of the Oireachtas' capacity to generate investment income and lessen the cost–savings gap. However, this paper also argues that the speculative financial ideology substantiating SWFs' institutional legitimacy problematically constrained Irish state agency between 2001 and 2010. This constraint was most evident following the Irish banking crisis of 2008.

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A Portfolio Analysis of Sovereign Wealth Funds

Cited by 29 publications

References 0 publications

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Rise of the Fiduciary State: A Survey of Sovereign Wealth Fund Research

Lending, Investments and the Financial Crisis

Financial Ideas, Political Constraints: Sovereign Wealth Funds and Domestic Governance

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