A Portfolio Analysis of Sovereign Wealth Funds

Singapores Temasek Holdings Control Mechanisms and the Performance of the Firms Controlled by Temasek

“…Most of the investments made by other SWFs are taking the form of portfolio and rarely amount to a control stake holding (Balding, 2008). The China Investment Corporation (CIC) is the other one who claims that it also adopts concentrated equity investment strategy 7 .…”

“…First, it is about the definition of SWF. According to Balding (2008) A SWF is a pool of capital controlled by a government or government related entity that invests in assets seeking returns above the risk free rate of return. The IMF states that SWFs are special investment funds created or owned by government to hold foreign assets for long term purposes.…”

Investment Strategy of the Temasek Holdings

“…In these countries, SWFs partly also serve the purpose of stabilising government and export revenues which would otherwise mirror the volatility of oil and commodity prices (Balding, 2008). Another purpose of such funds in resource-rich countries is the accumulation of savings for future generations as natural resources which are non-renewable and are hence anticipated to be exhausted after some time.…”

“…Usually the funds are invested in the proceeds of non-renewable natural resources or a higher return alternative to holding foreign currency (Balding, 2008). The term sovereign wealth fund was introduced in 2005, but the first SWFs was introduced in 1953 by the government of Kuwait (Kuwait Investment Authority, a commodity SWFs) (Johnson, 2007).…”

Are Sovereign Wealth Funds' Investments Politically Biased?

“…Sun and Hesse (2009) find that the announcement effect of SWF investments is positive and SWF share purchases are positively associated with abnormal returns. Balding (2008) states that SWFs act as economic driven investors and their impact on international financial markets may be more moderate than expected. Chhaochharia and Laeven (2008) find that SWFs invest to diversify away from industries at home but do so in countries with cultural closeness, suggesting that investment rules are not entirely driven by profit maximising objectives.…”