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

Abstract

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.

The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments

“…We find public equity investments with sufficient data for nineteen of those funds, originating from fifteen countries, and the resulting sample we employ is described in Table 2. 9 Total assets for the funds in our list are worth of $2.97 trillion, representing 71% of total asset under management by SWFs documented by Megginson and Fotak (2014).…”

“…The data are assembled using multiple public sources. Megginson and Fotak (2014). For the complete list of SWFs meeting the SIL definition, see Bortolotti (2014).…”

“…In contrast to the old model of state-led entrepreneurship, in which the state owned and ran companies by ministerial diktat, today the most important government stock buyers tend to act primarily or solely as investors. Megginson and Fotak (2014) report that over the [2001][2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012] period governments acquired more assets through stock purchases ($1.52 trillion) than they sold through share issue privatizations and direct sales ($1.48 trillion), testifying both to the growing role of governments in the economy, despite multiple worldwide privatization waves, and to the changing nature of government involvement. Among state-owned investors, sovereign wealth funds (SWFs) play an especially prominent role, with investable assets estimated at over $4 trillion and growing faster than any other institutional investor group.…”

Business groups and the study of international business: A Coasean synthesis and extension

“…Private-sector BGs are mesoeconomic structures, but state-controlled BGs are tools of the government and thus do not fit into the synthesis we propose. State-controlled BGs are clearly important, especially in China (Ma & Lu, 2005;Fan, Wong, & Zhang, 2013;Hu, Cui, & Aulakh, 2019;Zhang et al, 2016) and Russia (Guriev, 2010), historically important in Austria (Stiefel, 2000), Canada (Arbour, 1993), Italy (Aganin & Volpin, 2005), Spain (Cuervo-Cazurra, 2018), and elsewhere, and potentially important as sovereign wealth funds that come to direct de facto BGs (Megginson & Fotak, 2015). Space constraints preclude encompassing these issues properly.…”

Internationalization of state-owned enterprises from emerging markets: Overview of theoretical approaches

“…новым явлением стали большие государственные инвестиционные фонды (sovereign wealth funds), чьи активы играют значительную роль в крупнейших экономиках мира (см., напр. : [Sauvant, Sachs, Jongbloed, 2012;Megginson, Fotak, 2015;Aguilera, Capape, Santiso, 2016]). Эти фонды рассматриваются как особая разновидность госкомпаний, они активно используются в качестве инструмента интернационализации, становясь заметными игроками на мировой экономической арене.…”