Sovereign Wealth Funds Much Like Other Investors
A large new study from the Monitor group confirms what much recent research has suggested: sovereign wealth funds do not differ markedly in their investment objectives from other investment firms. The only exception to the rule being that SWFs, typically favor investment in their home countries over foreign investment opportunities, according to the study Assessing the risks.
The study’s key findings:
- SWFs invest heavily in domestic and emerging markets.
- Each fund has a distinctive investment pattern. Attempts to categorize SWFs by age, size, region, purpose, form of their sovereign government owners, or stage of economic development of their home country obscure important differences between them.
- Recent SWF investments in U.S. and European financial services firms are atypical and opportunistic, reflecting the credit crunch of 2007-2008. Most SWF investments have occurred in financial services, real estate, and industrial companies, with most publicity focused on financial services. Controlling for the effects of the recent credit crunch, the apparent appetite for investment in this sector drops markedly, though it remains significant.
- SWFs do not appear to be investing for political motives.
- SWFs are willing to take controlling stakes in companies. In contrast to prevailing views, since 2000, SWFs have acquired controlling stakes in half of their transactions for which stake data are available. By far most of these deals occurred in emerging markets and in sectors not generally deemed politically sensitive.
- SWFs are taking more financial risk with their investments.
The study says multilateral regulation of SWFs is extremely unlikely. It concludes with a call for greater transparency in SWFs to allay public concern over their activities.
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