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Optimal Asset Allocation for Sovereign Wealth Funds: Theory and Practice

Author

Listed:
  • Zvi Bodie

    (Boston University)

  • Marie Brière

    (Amundi
    Université Paris Dauphine
    Université Libre de Bruxelles)

Abstract

This paper addresses management of sovereign wealth from the perspective of the theory of contingent claims.Starting with the sovereign’s balance sheet, we frame sovereign fund management as an asset-liability management (ALM) problem, covering all public entities and taking explicit account of all sources of risks affecting government resources and expenditures. Real-life SWFs asset allocations differ strongly from theoretical ones. Financial management of the sovereign balance sheet is hampered by a lack of aggregate data, which compromises the coordination of sovereign wealth management with fiscal policy, monetary policy and public debt management. In this framework, we suggest institutional arrangements that could overcome this obstacle and enable efficient coordination.

Suggested Citation

  • Zvi Bodie & Marie Brière, 2014. "Optimal Asset Allocation for Sovereign Wealth Funds: Theory and Practice," Bankers, Markets & Investors, ESKA Publishing, issue 128, pages 49-54, January.
    • Handle: RePEc:rbq:journl:i:128:p:49-54
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    File URL: http://www.revue-banque.fr/medias/content/users/christine/1389197947477.pdf
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    Cited by:

    1. Gangi, Francesco & Mustilli, Mario & Varrone, Nicola & Graziano, Domenico, 2023. "Target firms’ characteristics and the effects of sovereign wealth funds’ investments: Does cultural context of SWFs matter?," Research in International Business and Finance, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Asset-Liability Management; Balance Sheet; Contingent Claim Analysis; Sovereign Wealth Funds; Central Bank Reserves;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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