Sunday, June 13, 2010

Are Sovereign Wealth Funds Motivated By Politics?

. Sunday, June 13, 2010

Not so much, according to new research from the OECD:

This research deals with the question of sovereign wealth funds’ investments from a comparative perspective. Based on a unique holding-level data for a group of sovereign funds and mutual funds, it shows that the differences in equity investments between SWFs and other institutional investors are less pronounced than suspected. This is illustrated by comparing the geographical/sector allocation and the targeted firms’ profile. A new dimension of analysis is introduced: the political regime in the sending and recipient countries. Evidence suggests that SWFs and mutual funds’ investments converge when looking at the political profile of targeted countries.

These results point towards some policy implications. First, in line with the OECD viewpoint, double standards for institutional investments should be avoided. Sovereign wealth funds exhibit more similarities than differences to other institutional investors. Second, taking mutual funds as a financial-oriented benchmark, SWFs are investing in countries that are financially rewarding, regardless of the political regime. Third, allocation disclosure is an important step towards transparency, but should not only be a requirement for sovereign wealth managers, but also for other institutional investors, either public or private.

Full paper at the link above.


Are Sovereign Wealth Funds Motivated By Politics?




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