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The Investment Strategies of Sovereign Wealth Funds

  • Shai Bernstein
  • Josh Lerner
  • Antoinette Schoar

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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File URL: http://www.nber.org/papers/w14861.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14861.

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Date of creation: Apr 2009
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Publication status: published as Bernstein, Shai, Josh Lerner, and Antoinette Schoar. 2013. "The Investment Strategies of Sovereign Wealth Funds." Journal of Economic Perspectives, 27(2): 219-38.
Handle: RePEc:nbr:nberwo:14861
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  1. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 229-259.
  2. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  3. Oliver Gottschalg & Ludovic Phalippou, 2009. "The Performance of Private Equity Funds," Post-Print hal-00458110, HAL.
  4. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 995-1025.
  5. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Abhijit V. Banerjee, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1289-1332.
  7. Josh Lerner & Antoinette Schoar & Wan Wong, 2005. "Smart Institutions, Foolish Choices? The Limited Partner Performance Puzzle," NBER Working Papers 11136, National Bureau of Economic Research, Inc.
  8. Tirole, J., 1993. "The Internal Organization of Government," Working papers 93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
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