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Are Sovereign Wealth Funds' Investments Politically Biased?: A Comparison with Mutual Funds

Author

Listed:
  • Rolando Avendaño

    (OECD)

  • Javier Santiso

    (OECD)

Abstract

Global allocation of capital and fluctuations in asset prices are increasingly influenced by the activities of Sovereign wealth funds (SWFs). The Santiago Principles called for higher transparency, stressing that SWFs should exhibit clearer governance standards and sound portfolio management principles. Although asset allocation strategies for these funds are not known, SWFs are suspected to follow other factors besides risk-return objectives. This paper attempts to shed light on some of these concerns. The fear that sovereigns with political motivations use their financial power to secure large stakes in Western companies is shown to be unfounded. We find that SWF investment decisions do not differ greatly from those of other wealth managers. We propose to use mutual funds’ investments as a benchmark for SWF investment allocations. We collect data of SWF and mutual fund equity investment at the firm level and analyse these investments on a geographical and sector basis. Moreover, we compare target investments for these two groups by looking at the political regime in the sending and recipient country, under the hypothesis that this variable is not determinant for SWF investments. Finally, we provide a comparison of SWFs and other public funds based on governance features related to investment. We argue that double standards for regulation should be avoided and efforts to achieve higher transparency should be made by all investing actors. L’allocation globale de capitaux et les fluctuations des prix des actifs sont de plus en plus influencées par les activités des fonds souverains. Les Principes de Santiago appelaient à davantage de transparence, insistant sur la nécessité pour les fonds souverains de clarifier leurs standards de gouvernance et de renforcer leurs politiques de gestion de portefeuille. Bien que leurs stratégies ne soient pas clairement identifiées, les fonds souverains sont soupçonnés de répondre à des objectifs autres que ceux liés au ratio risque-rendement. Cet article tente de répondre à ces questions. La crainte de voir les fonds souverains guidés par des motivations politiques utiliser leur pouvoir financier pour s’assurer de larges parts dans les compagnies occidentales se révèle infondée. Nous montrons que les décisions d’investissement des fonds souverains ne diffèrent pas fondamentalement de celles d’autres gérants de fonds. Nous proposons d’utiliser les fonds mutuels comme catégorie de référence pour l’étude des allocations d’investissement des fonds souverains. Nous recueillons des données sur l’investissement des fonds souverains et des fonds mutuels sur les marchés d’actions et analysons leurs stratégies géographiques et sectorielles. Nous comparons ensuite les investissements pour ces deux groupes d’investisseurs en regardant le régime politique dans les pays émetteur et destinataire, sous l’hypothèse que cette variable n’est pas déterminante quand ils investissent. Enfin, nous effectuons une étude comparative des fonds souverains et d’autres types de fonds à partir de l’analyse de certains aspects liés à la gouvernance et la politique d’investissement. Nous déconseillons fortement l’instauration d’une régulation fondée sur le principe du« deux poids, deux mesures » et recommandons d’accentuer les efforts en faveur d’une plus grande transparence de la part des investisseurs.

Suggested Citation

  • Rolando Avendaño & Javier Santiso, 2010. "Are Sovereign Wealth Funds' Investments Politically Biased?: A Comparison with Mutual Funds," OECD Development Centre Working Papers 283, OECD Publishing.
  • Handle: RePEc:oec:devaaa:283-en
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    File URL: http://dx.doi.org/10.1787/218475437211
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    Cited by:

    1. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    2. Dariusz Urban, 2016. "The Investment Attractiveness of Companies Listed on the Warsaw Stock Exchange to Sovereign Wealth Funds," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(2), pages 333-350, June.
    3. Luisa ANDERLONI & Daniela VANDONE, 2012. "Sovereign Wealth Fund Investments in the Banking Industry," Departmental Working Papers 2012-24, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    4. Pekkanen Saadia M & Tsai Kellee S, 2011. "The Politics of Ambiguity in Asia's Sovereign Wealth Funds," Business and Politics, De Gruyter, vol. 13(2), pages 1-46, August.
    5. John Farrar & David G. Mayes (ed.), 2013. "Globalisation, the Global Financial Crisis and the State," Books, Edward Elgar Publishing, number 15045.
    6. Mohamed Ariff & John H. Farrar, 2013. "The governance and regulation of sovereign wealth funds and foreign exchange reserves in a post-GFC world," Chapters,in: Globalisation, the Global Financial Crisis and the State, chapter 12, pages 272-293 Edward Elgar Publishing.
    7. I. Anthopoulos & C. Pitelis & C. Liakou, 2016. "The Nature, Performance and Economic Impact of Sovereign Wealth Funds," Working papers wpaper135, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

    More about this item

    Keywords

    allocation d'actifs; asset allocation; benchmarks; fonds souverains; political regimes; regulation; régimes politiques; régulation; sovereign wealth funds;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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