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Sovereign Wealth Funds: Their Investment Strategies and Performance

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  • Chhaochharia, Vidhi
  • Laeven, Luc

Abstract

Sovereign wealth funds have emerged as an important investor of global equity, attracting growing attention. Despite concerns that sovereign wealth fund investments may serve political objectives and be in conflict with national interests, little is known about the investment objectives and performance of sovereign wealth funds. We collect new data on foreign equity investments by sovereign wealth funds. We find that sovereign wealth funds largely invest to diversify away from industries at home but that they do so predominantly in countries that share the same culture, suggesting their investment rules are not entirely driven by profit maximizing objectives. Share prices of firms respond favorably when sovereign investment funds acquire stakes, in part because these investments often take place when firms are in financial distress. However, the long-run performance of equity investments by sovereign wealth funds tends to be poor, consistent with imperfect portfolio diversification and poor corporate governance.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6959.

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Date of creation: Sep 2008
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Handle: RePEc:cpr:ceprdp:6959

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Keywords: Asset allocation; Corporate governance; Sovereign wealth funds;

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Cited by:
  1. Gabriel Enrique Alberola & José María Serena, 2009. "Sovereign external assets and the resilience of global imbalances," Banco de Espa�a Working Papers 0834, Banco de Espa�a.
  2. Torfinn Harding & Frederick Van der Ploeg, 2009. "Is Norway's Bird-in-Hand Stabilization Fund Prudent Enough? Fiscal Reactions to Hydrocarbon Windfalls and Graying Populations," CESifo Working Paper Series 2830, CESifo Group Munich.
  3. Christopher Balding, 2009. "Qui a peur des fonds souverains ?," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 215-227.
  4. Sun, Jiayi & Demmler, Michael, 2009. "Sovereign Wealth Funds: Ein Branchenüberblick," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2009-02, University of Bayreuth, Chair of Finance and Banking.
  5. Buetzer, Sascha & Habib, Maurizio Michael & Stracca, Livio, 2012. "Global exchange rate configurations: Do oil shocks matter?," Working Paper Series 1442, European Central Bank.
  6. Christopher Balding, 2009. "Who's Afraid of Sovereign Wealth Funds ?," Revue d'Économie Financière, Programme National Persée, vol. 9(1), pages 201-210.

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