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The Investment Strategies of Sovereign Wealth Funds

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Author Info

  • Josh Lerner

    (Harvard Business School)

  • Shai Bernstein

    (Harvard University)

  • Antoinette Schoar

    (Harvard University)

Abstract

This paper examines the direct private equity investment strategies across sovereign wealth funds and their relationship to the funds’ organizational structures. SWFs seem to engage in a form of trend chasing, since they are more likely to invest at home when domestic equity prices are higher, and invest abroad when foreign prices are higher. Funds see the industry P/E ratios of their home investments drop in the year after the investment, while they have a positive change in the year after their investments abroad. SWFs where politicians are involved have a much greater likelihood of investing at home than those where external managers are involved. At the same time, SWFs with external managers tend to invest in lower P/E industries, which see an increase in the P/E ratios in the year after the investment. By way of contrast, funds with politicians involved invest in higher P/E industries, which have a negative valuation change in the year after the investment.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.25.

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Date of creation: Apr 2009
Date of revision:
Handle: RePEc:fem:femwpa:2009.25

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Keywords: General Finance; Countries & Regions; Financial Services;

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Cited by:
  1. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2012. "U.S. international equity investment," International Finance Discussion Papers 1044, Board of Governors of the Federal Reserve System (U.S.).
  2. 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.
  3. Jerome Couturier & Davide Sola & Paul Stonham, 2009. "Are sovereign wealth funds “white knights”?," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 1(3), pages 142-151, September.
  4. Izabela Pruchnicka-Grabias, 2010. "Sovereign Wealth Funds - The Activity And Its Consequences For The Global Economy," Interdisciplinary Management Research, Faculty of Economics in Osijek, Croatia, vol. 6, pages 510-522.
  5. Knill, April M. & Lee, Bong Soo & Mauck, Nathan, 2012. "Sovereign wealth fund investment and the return-to-risk performance of target firms," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 315-340.
  6. 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.
  7. John Ammer & Sara B. Holland & David C. Smith & Francis E. Warnock, 2012. "U.S. International Equity Investment," NBER Working Papers 17839, National Bureau of Economic Research, Inc.
  8. Miroslava Filipović, 2011. " Exigency Politics or New World Order?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 373-391, September.

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