Sovereign wealth funds in the post-pandemic era

Abstract

Sovereign wealth funds (SWFs) have over $11.5 trillion in assets under management as of February 2023. Most of these 176 funds are sponsored by non-Western countries and their growth has made SWFs important international investors, particularly in private equity funding. We first define SWFs, then discuss their evolution into today's categories of stabilization, savings, and development/strategic funds. We discuss the documented importance of SWF funding sources -oil sales revenues versus excess reserves from export earnings -and summarize the empirical literature studying how SWFs allocate funds geographically and across asset classes. Next, we summarize empirical evidence on the impact of SWF stock investments on target firm financial and operating performance and discuss the evidence showing that the announcement of SWF investment causes target firm stock prices to rise in the short term, but the positive impact is significantly less than the positive return following large stock purchases by private investors, and the longer-term effect of SWF investment on target firms is generally negative. SWFs' recent focus on promoting ESG policies of investee companies is assessed and briefly compared to the effectiveness of other institutional investors' ESG efforts.

The Sovereign Wealth Fund and Nigerian Economic Development

“…An alternative approach to categorizing SWFs is based on their investment objectives. Megginson et al (2021) and Megginson et al (2023) propose a classification method known as the Global SWF method. This method identifies three types of SWFs.…”

“…The number of SWFs and the assets they manage, both foreign and domestic, have witnessed steady growth in developed and developing countries, as well as in rich and poor countries across all continents. As of July 2022, SWFs worldwide had accumulated $11.5 trillion in assets under management (AuM) (Megginson, Malik, and Zhou, 2023 In the United States, Alaska has a $81 billion SWF from oil sales, Wyoming has a $25 billion SWF from coal, oil, and natural gas sales, and New Mexico has a $34 billion fund primarily derived from oil.…”

“…Notably, Rasaki and Malikane (2018) Adonu (2021) argues that both domestic and foreign SWFs can play a leading role in the developmental process in Africa. Additionally, Megginson, Malik, and Zhou (2023) argue in this context that partnerships between countries in the 'global South' can indeed assist in the development of developing nations, although further research into their outcomes is warranted.…”

“…Robust frameworks must be developed for sovereign wealth funds to maintain their independence in decisionmaking. Megginson et al (2023) discussed the documented importance of SWF funding sources and summarized the empirical literature examining how SWFs allocate their capital geographically and across asset classes. The study further summarized the empirical evidence on the impact of SWF equity investments on the financial and operating performance of target firms and examined evidence suggesting that SWF investment announcements lead to higher prices.…”