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Sovereign Wealth Fund Investment Patterns and Performance

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Author Info

  • William L. Megginson

    (Price College of Business)

  • Bernardo Bortolotti

    (Fondazione Eni Enrico Mattei and Università di Torino)

  • Veljko Fotak

    (University of Oklahoma and Fondazione Eni Enrico Mattei)

  • William Miracky

    (Monitor Group)

Abstract

This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average -15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $57billion on their holdings of listed stock investments alone through March 2009.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.22.

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Date of creation: Apr 2009
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Handle: RePEc:fem:femwpa:2009.22

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Related research

Keywords: Sovereign Wealth Funds; International Financial Markets; Government Policy and Regulation;

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Cited by:
  1. Dewenter, Kathryn L. & Han, Xi & Malatesta, Paul H., 2010. "Firm values and sovereign wealth fund investments," Journal of Financial Economics, Elsevier, vol. 98(2), pages 256-278, November.
  2. Gawdat Bahgat, 2011. "Sovereign wealth funds in the Gulf - an assessment," LSE Research Online Documents on Economics 55015, London School of Economics and Political Science, LSE Library.
  3. Artur Grigoryan, 2011. "Incentives and the delegation of decision making power in sovereign wealth funds," Volkswirtschaftliche Diskussionsbeiträge 146-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  4. Kotter, Jason & Lel, Ugur, 2011. "Friends or foes? Target selection decisions of sovereign wealth funds and their consequences," Journal of Financial Economics, Elsevier, vol. 101(2), pages 360-381, August.
  5. Artur Grigoryan, 2011. "Incentives and the Delegation of Decision Making Power in Sovereign Wealth Funds," MAGKS Papers on Economics 201117, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  6. Bao Ngoc Dinh, 2011. "The impact of Sovereign Wealth Fund investments on the performance of listed companies," Post-Print halshs-00658489, HAL.
  7. Heiko Hesse & Tao Sun, 2009. "Sovereign Wealth Funds and Financial Stability-An Event Study Analysis," IMF Working Papers 09/239, International Monetary Fund.

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